Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Former Xstrata boss Mick Davis’ newly founded battery metals investment firm Vision Blue Resources (VBR) is stepping up efforts to reach the goal of becoming a battery metals giant by launching a $300 million special-purpose acquisition company (SPAC).
ESM Acquisition Corp. (NYSE: ESM), co-sponsored by VBR and private equity mining investor The Energy and Minerals Group, floated in the US last week. Its mandate is to hunt for and invest in mining projects focused on producing minerals needed for electric vehicles (EVs) and other green energy technologies.
The plan is to use the Vision Blue business to invest in small mining projects, while ESM will seek bigger investment opportunities.
“ESM’s strategy is to identify and complete an initial business combination with a target that can benefit from its leadership team’s significant experience in the natural resources industry,” VBR said in a media statement. “ESM intends to focus on a target business that is positioned to benefit from the global transition towards a low-carbon economy.”
Vision Blue will invest in small mining projects, while ESM will seek bigger investment opportunities
SPACs are like “blank-check” firms with the purpose to raise money in a listing and use those funds to acquire assets within two years. They have boomed this year, leading to a record first quarter for initial public offerings (IPOs).
More than 600 issuers have raised $162.4 billion so far in 2021, the most ever at this point in the year, according to data compiled by Bloomberg. SPACs accounted for half those proceeds.
Davis’ company also announced an $11.5 million investment in Ferro-Alloy Resources (LON: FAR), which is developing the Balasausqandiq vanadium project in Kazakhstan.
This is the second company VBR has invested in since its launch last month when it put $29.5 million into Canada’s NextSource Materials (TSX:NEXT), which is building a graphite mine in Madagascar.
Davis is a well-known name in the mining industry as he led Xstrata from a $500 million business in the early part of the last decade to an operation so big that — at one point — it made a takeover offer for Anglo American (LON:AAL).
In 2012, he sold Xstrata to Glencore (LON: GLEN) and ventured into setting up X2 Resources, a mining fund that was unable to score any deals in three years after launch.
Demand for green metals is “a gold rush on steroids”
Simon Moores, managing director of Benchmark Mineral Intelligence
Davis did not get discouraged by that failure. In 2019, he co-founded Niron Metals, an investment vehicle involved in bringing Guinea’s Zogota iron ore deposit into production.
The mining veteran now wants to seize the opportunity presented by the increasing need for battery metals, which include a host of materials from vanadium through to lithium, graphite, nickel, and cobalt.
Davis warned last month that the supply of those materials was not keeping pace with demand growth. He said that the need for battery metals would “dwarf anything the mining industry has ever seen before, including the commodity impact of China’s industrialization in the last 20 years.”
“It’s a gold rush on steroids,” Simon Moores, managing director of Benchmark Mineral Intelligence, told the Financial Times. “You’ve got the emergence of this green revolution where you have to build infrastructure from scratch. It’s not just China this time, it’s North America at the same time as China, and Europe at the same time as China.”
