It’s not about scoring the big win, it’s about not backing losers

By Frik Els

A conversation with Michael Scherb, founder of private equity firm Appian Capital

Appian Capital Advisory founder & CEO Michael Scherb, a dual Austrian-Singaporean national, started his career structuring foreign investment into burgeoning China pre-supercycle before joining the mining team at JP Morgan Cazenove in London. He worked on deals as diverse as Rio Tinto’s $153 billion 2008 defence against a hostile BHP, a $1 billion Istanbul gold mining IPO, yearly strategy presentations for the Board of Xstrata, M&A for France’s Areva in Africa and a bond offering for Russian diamond giant Alrosa amongst many others. He founded Appian in 2014.

In 2014, Private Equity firm Appian Capital closed its first fund, taking in $375m from over $1.2bn of interest, focusing on the metals and mining sector.

In just 4 years, Appian has already overseen five mines into production while seven out of eight Appian investments, spanning three continents and a range of commodities, will be in production within the next 18-24 months.

Appian also announced at the end of March the sale of one of its assets – Brazil’s Avanco Resources – in a deal worth $350m to Oz Minerals, which marks the Fund’s second successful exit. caught up with Michael W. Scherb, Founder and CEO, to discuss the state of Private Equity in the mining industry, his investment philosophy, the portfolio and what the future holds for Appian.

You’ve packed a lot into the past few years, give us an update on Appian as an organization.

We have been cautious and measured in building the organization.

We are now 23 people overseeing 1,600 individuals in 8 portfolio companies with offices in Vancouver, Lima, Perth, and a Johannesburg presence to complement our London head office. We aim to hire the absolute best people in each discipline, and the individuals in our team are really the lifeblood and embody the culture and vision established when the firm was founded.

How would you summarise your investment philosophy?

Long term value investing, with a unique focus on technical arbitrage in the cyclical metals and mining sector. And by arbitrage, I mean the asymmetry of information that our team analyzes and prices in terms of risk.

In the Private Equity space, metals & mining is dwarfed by oil & gas investment. Why do you think this is?

Mining PE is in a similar space to what Oil and Gas PE was a couple decades ago. What the industry needs is a few major players to prove that the model works, and that mining PE can become a viable asset class from an investor’s perspective and that means consistency in deliverability of returns.

When we were raising capital, even generalist Private Equity funds became curious about mining. Some of the big PE names realised that there could be some unique alpha in mining, only to say, “well, traditional PE principles don’t apply and while I see the reward potential, there are some elements of risk that require a risk analysis based on experience and technical skill rather than numerical certainty” and simply disappearing.

Avanco’s processing plant in Carajas, Brazil.

Mining investment doesn’t always have to be taking a punt on a discovery or be a grassroots pure play. It can be structured in the same way that made Private Equity in the oil and gas sector so popular, that is, downside risk protected investments while keeping commodity price optionality.

When you structure it appropriately, you can invest into projects where it’s very difficult to lose money and still maintain upside potential. If I look across our portfolio, I find it very difficult for us to lose capital for our investors. Once investors realise that there is a model in the sector which offers downside protection, stable returns while keeping upside optionality, PE in mining should become an asset class.

In mining, however, people are far too focused on what they can make rather than what they can lose, to make that happen just yet.

You’ve talked about the need for second level thinking in mining. What does this mean?

Howard Marks, the head of Oaktree wrote a great book on investing which encourages second level thinking, i.e not just “supply/demand fundamentals look attractive on copper so let’s invest,” but if it looks attractive, how does this affect the psychology of the industry, including other investors, major mining companies and others.

What will this group decision making have on future investment and supply and how should we adjust our exit timing and investment strategy accordingly?

Unfortunately, or fortunately if you are a long-term value investor, first level thinking prevails, in this industry we all love.

Why do you think PE is a better form for investing in mining?

Private Equity is kind of a misnomer – private specialist capital is probably a more descriptive term.

Traditional Private Equity principles don’t apply to mining, however, long-term value investing principles do. Traditional Private Equity principles don’t apply to mining, however, long-term value investing principles do. And by long-term value investing, I mean through-the-cycle thinking.

Mining is the perfect industry for applying long-term value investing principles because it’s so cyclical, and you let the industry create the entry and exit windows for you through its volatility and irrationality.

All you need is patient capital, which the industry never had before, and which is why we’re a 10-12 year fund. Investors are getting shorter and shorter in terms of focus and you’re going to have more frequent and shorter cycles. So in 10-15 years we expect probably 2-3 mini-cycles which is enough time for us to enter and exit our investments.

The great thing about active investing, and why I greatly prefer the Private Equity model to the liquid investing approach is that you can work with management teams to tangibly create value rather than being passive and waiting for the market to price your investment correctly. Active management relies on exploiting mispricing within the market, which means that the determination of value is of critical importance.

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Vancouver miner to become one of Nova Scotia’s largest single mineral claim holders

By Valentina Ruiz Leotaud

Coronet Metals (TSXV: CRF) announced this week that it has entered into an agreement to gain 100% interest in 3,888 mineral claims totalling over 62,000 hectares in the Meguma Gold Belt located in Nova Scotia, eastern Canada.

In a press release, the company explained that the claims are adjacent and along trend from Atlantic Gold’s Touquoy disseminated open-pit gold deposit. On its website, Atlantic Gold states that, in this area, it has outlined a measured plus indicated resource of 10.1 million tonnes grading 1.5 gram per tonne for a total of 480,000 ounces of gold, plus an inferred resource of 1.6 million tonnes and 77,000 ounces of gold.

According to Coronet, its new claims were staked along the under-explored trends of known gold producing anticlinal structures. The company estimates that it will control approximately 242 kilometres of gold-prospective anticlines.

To better define the anticlinal trends and focus a Phase-1 exploration program, the Vancouver-based miner initiated a 12,342 kilometre aeromagnetic and radiometric survey along with a 1,110 square kilometres of LiDAR survey.

In the view of Coronet’s President, Theo van der Linde, the awakening of Nova Scotia’s gold fields is due to a recognition that an economic disseminated gold exploration and production model exists in the Meguma Gold Belt.

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Meghan Markle’s wedding band made with Welsh gold from historic mine


It’s the story of the weekend. Even if you don’t follow the Royals, you probably got a glimpse of Prince Harry and Meghan Markle’s wedding somewhere.

One of the most important elements in the ceremony was the wedding ring, particularly the one given to the bride. Similar to her engagement ring and following a 100-year-old tradition, Markle’s band was fashioned from a piece of Welsh Gold, gifted by Her Majesty The Queen.

The 24-carat piece of gold originated at the Clogau St. David mine, located near Bontddu in northwest Wales and owned by Clogau Gold of Wales. The Royals started receiving nuggets of the yellow metal from this mine back in 1923.

Photo from The Royal Family’s Facebook page.

From Clogau St. David was also extracted the gold behind three generations of royal wedding bands, including those of the Queen Mother, the Queen, Princess Margaret, the Princess Royal and Diana, Princess of Wales.

Later on, in 1986, the Windsors started receiving gold from the Gwynfynydd mine, which is also located in northwest Wales and is now owned by Clogau.

The Clogau St. David and Gwynfynydd mines are currently closed, having last operated in the 1990s. However, early this year it was announced that the former might reopen.

London-based Alba Mineral Resources said it has taken a 49 per cent interest in Gold Mines of Wales Limited and that it had decided to restart the project because it sits on “a vastly under-explored exploration ground.”

In terms of Prince Harry’s wedding ring, a press release issued by Buckingham Palace revealed that his was made of platinum with a textured finish.

The couple chose Cleave and Company to make their bands. They were carried to St. George’s Chapel by The Duke of Cambridge Prince William, Harry’s older brother and best man.

Cleave and Company also crafted Markle’s engagement ring, which was designed by the Prince himself and features a yellow gold band and a central stone from Botswana, where Harry traveled to while growing up and again in the summer of 2017 to celebrate his now wife’s 36th birthday.

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The 30-year view: examining the future of gold

By World Gold Council

The World Gold Council today launched a one-off essay collection, Gold 2048, bringing together industry-leading experts from across the globe to analyse how the gold market is set to evolve in the next 30 years.

Key conclusions emerging from authors such as George Magnus, senior economist; Rick Lacaille, Global Chief Investment Officer of State Street Global Advisors; and Michelle Ash, Chief Innovation Officer at Barrick Gold include:

  • The expanding middle class in China and India, combined with broader economic growth, will have a significant impact on gold demand.
  • Use of gold across energy, healthcare and technology is changing rapidly. Gold’s position as a material of choice is expected to continue and evolve over the coming decades.
  • Mobile apps for gold investment, which allow individuals to buy, sell, invest and gift gold will develop rapidly in India and China.
  • Environmental, social and governance issues will play an increasing role in reshaping mining production methods.
  • The gold mining industry will have to grapple with the challenge of producing similar levels of gold over the next 30 years to match the volume it has historically delivered.

Aram Shishmanian, CEO of the World Gold Council commented: “Since its creation in 1987, the World Gold Council has worked with policymakers, regulators and industry participants to drive understanding of and, ultimately, demand for gold.

“The next 30 years will no doubt bring significant changes – some we anticipate, some that none of us predict. I am delighted that in Gold 2048 we have brought together a stellar set of contributors – economists, investment managers, leaders in the mining industry, as well as our own specialists – to consider the global trends and dynamics that will drive this fascinating market forward.”

Click image to download

You can follow the World Gold Council on Twitter at @goldcouncil and Like on Facebook.

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Thor Explorations says results of test work at Segilola better than expected

By Cecilia Jamasmie

Canada-listed junior miner Thor Explorations (TSX-V: THX) published Friday first results from metallurgical test work at its Segilola project in Nigeria, poised to become the country’s first large-scale gold mine.

The testing is part of the definitive feasibility study (DFS) for the project, located about 200km from the capital Lagos, and which is expected to come online in early 2020.

The project, poised to become Nigeria’s first large-scale gold mine, is expected to come online in early 2020.

Highlights of the results, which used a bulk sample of 500kg of core, showed 77.5% average gravity recovery rate, and 98.9% total recovery was confirmed at 106 µm (micrometer) grind size and 24-hour cyanide leach

Average recovered head grade was 8.73 grams per tonne of the yellow metal, compared to estimated grade of 6.66 g/t gold.

“We are extremely encouraged by these results which have both confirmed our hypotheses and exceeded our expectations,” the company’s president and chief executive, Segun Lawson, said in the statement.

“The results confirm substantial gravity recovery is achievable and a significant opportunity exists for optimisation of the process plant, resulting in a reduced operating cost, increased total recovery and improved process efficiency. The results also return a 30% increase in the recovered grade compared to the estimated grade.”

Probable gold reserves at Segilola, Thor’s flagship project, are currently pegged at 448,000 ounces of gold grading 4.2 grams per tonne of gold within a global resource base of 862,000 ounces gold.

Shares in Thor Explorations stood at 22 Canadian cents on Friday afternoon. So far this year, they’ve climbed nearly 50%.

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Eritrea ‘poison pill’ complicates miner Lundin’s aspirations -sources

By Reuters

VANCOUVER/TORONTO, May 17 (Reuters) – The weak human rights record of one of Africa’s poorest countries is coming between Lundin Mining Corp and its pursuit of a prized European copper and gold asset.

Cash-rich Lundin’s latest run at fellow Canadian miner Nevsun Resources Ltd is designed to bag the Timok project in Serbia, but it had to bring on a partner to pick up Nevsun’s Bisha mine in Eritrea.

That is because Lundin Mining’s board of directors, chaired by billionaire resources tycoon Lukas Lundin, refuses to invest in Eritrea, according to four people familiar with, but not able to speak publicly on, the matter.

They will not own the Eritrean mine “for even one second,” one of the people said. That stance is not necessarily a deal breaker, said an investor who declined to be named.

Lundin Mining’s biggest shareholder is a private investment company owned by a Lundin family trust, with a near 13-percent stake, Thomson Reuters data shows.

Nevsun, Lundin and partner Euro Sun Mining Inc, a tiny mine developer whose stock several Nevsun shareholders are not keen to own, declined to comment.

Last week, Lundin Mining disclosed that it partnered with Euro Sun on a C$1.5 billion ($1.17 billion) cash and stock proposal to buy Nevsun. Under that plan, Lundin would own the European assets of Nevsun, including Timok, and Euro Sun would own the rest of Nevsun, including the Bisha mine in Eritrea.

Nevsun rejected the “inadequate” proposal, which is not a formal bid.

Eritrea’s national service program was likened “to slavery in its effects” by the United Nations in 2015, an allegation the government rejects. Ruled by a former Marxist guerrilla leader since its independence from Ethiopia, Eritrea sees conscription as crucial to its security.

In a 2014 lawsuit, Eritreans allege they were forced to work at Nevsun’s Bisha mine between 2008 and 2012. Nevsun, which appealed to Canada’s Supreme Court in January to throw out the case, has said its investment in Eritrea brings social and economic benefits.

Lundin Mining belongs to the Swedish-Canadian Lundin family’s global empire of copper, diamond, gold and oil companies, which has previously invested in such higher-risk jurisdictions as the Democratic Republic of Congo.


The family has become more cautious, the people said, with an ongoing investigation into allegations that Stockholm-listed Lundin Petroleum was complicit in crimes against international humanitarian law in Sudan between 1997 and 2003. Lundin Petroleum denies any wrongdoing.

In January, police searched company offices in Stockholm and Geneva and the Lundin family office in Geneva. No charges have been laid in the investigation, which began in 2010.

“Lukas is highly sensitive to this,” a second person said.

Several sizeable Nevsun shareholders are concerned about Lundin’s tie-up with Euro Sun, a potential hurdle to any future deal. Euro Sun has no operations and its core asset is an undeveloped Romanian gold property.

Euro Sun “is not exactly a piece of paper that I am looking forward to holding for a long time,” said Nevsun shareholder Adrian Day, president of Adrian Day Asset Management.

A better partner would have been a Chinese miner, which tend to have bigger risk appetites, with state backing for a cash bid, said Rick Rule, CEO of Sprott U.S. Holdings, a unit of Nevsun’s eighth-largest shareholder, Sprott Inc.

Lundin Mining has been trying to acquire the high-grade Timok property for two years to boost production. Its proposal with Euro Sun is the fourth advance that Nevsun has rejected this year, but the first to include the Eritrean mine.

Lifted by hopes of a “white knight” bidder, Nevsun stock neared C$5 a share on the Lundin-Euro Sun proposal last week, but by Thursday had deflated to C$4.45.

“For many companies out there, Bisha is the poison pill,” said Filipe Martins, analyst at Nevsun’s second-biggest shareholder, M&G Investment, which has called the Lundin-Euro Sun proposal “pretty fair”.

($1 = 1.2778 Canadian dollars)

(Reporting by Susan Taylor in Toronto and Nicole Mordant in Vancouver; Additional reporting by John Tilak in Toronto; Editing by Susan Thomas)

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Centerra gets $200 million for royalty portfolio and Kemess silver stream

By Cecilia Jamasmie

Canada’s Centerra Gold (TSX:CG) is selling its subsidiary AuRico Metals’ royalty portfolio and a silver stream on its Kemess project to Triple Flag Mining Finance Bermuda, in a deal valued at $200 million.

The transaction, said the company’s President and chief executive, Scott Perry, is meant to generate cash to continue developing key projects, as well as growing the miner’s pipeline, through the sale of non-core assets. He said the move would also allow Centerra strengthen its balance sheet.

The Toronto-based miner said the deal implied selling AuRico Metals’ royalty portfolio, including net smelter returns royalties on Kliyul, Chuchi and Redton exploration properties, an upfront cash payment of $155 million.

In the case of its Kemess property, located in Northern Interior of British Columbia, Canada, Centerra is selling 100% of the project’s silver production for $45 million, which will be payable in four tranches.

In the last two year, the company has made an effort to grow its portfolio in safe jurisdictions. In 2016, it bought out US-based Thompson Creek Metals, which gave it access to the namesake molybdenum mine in Idaho, as well as the Mount Milligan copper-gold mine in British Columbia, Canada. And in November, Centerra announced the acquisition of smaller rival AuRico Metals, which was completed in January.

More to come…

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Young Australians oblivious to mining

By Valentina Ruiz Leotaud

Despite mining contributing about 6 per cent of Australia’s GDP, a study by YouthSight revealed that 59 per cent of young people in the country know nothing at all about mining careers.

The results from the study were made public today at the MCA Minerals Education Summit in Melbourne and also through a press release issued by the industry-led, government-funded think tank METS Ignited, the Minerals Council of Australia, and the professional development organization AusIMM.

In the joint statement, the groups explained that the study used a nationally-representative sample of 1061 senior high school students and first-year university students aged between 15 and 20. The overarching finding was that their knowledge of mining careers was extremely low.

The poll also found that only 30 per cent of students had an interest in a career in mining or the mining equipment, technology and services, also known as METS, sector.

“Despite mining and METS providing jobs for 1.1 million Australians – or one in every 10 jobs – and great future prospects for our industry, it’s clear that we must do much more to make young people aware about the opportunities and rewards in mining and METS,” METS Ignited CEO Ric Gros said in the media brief.

Gross added that, within these sectors, areas such as information and communication technologies and professional and technical services saw a 164 per cent job growth between 2005 and 2015. “Australia’s world-class METS sector will need many highly-skilled young people to fill the jobs of tomorrow including drone pilots, environmental and social scientists and engineers. The jobs are there,” he said.

But youth don’t even “consider” a career in mining, the study revealed. Forty-five per cent of respondents said “It’s not an industry I’ve ever thought about,” while 40 per cent said, “I don’t know anything about mining.”

Interest was spiked, however, when salaries and benefits were brought to the table. According to the communiqué, 48 per cent showed interest based on high incomes on offer and 20 per cent based on the number of jobs and opportunities on offer, with job stability being a key driver of career selection.

“Our industry has a great story to tell – our high-skill, high-wage workforce is younger, better-paid, better trained and has a much higher share of apprentices than other sectors, with average full-time weekly pay of $2,610, 67 per cent higher than the all-industries average. We need to tell our story better to make young people and their parents aware of the tremendous opportunities on offer, including world-leading innovation,” Gavin Lind, MCA Executive Director Minerals Tertiary Education, said in the release.

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Ray Dalio, Paulson keep faith in gold amid rate hike headwind

By Bloomberg News

Billionaire hedge-fund managers John Paulson and Ray Dalio kept their faith in gold even as rising interest rates trim the metal’s gains.

As of March 31, New York-based Paulson & Co. had 4.32 million shares in SPDR Gold Shares, the biggest exchange-traded product backed by bullion, according to a regulatory filing. That compares with 4.36 million shares at the end of December. Billionaire Ray Dalio’s hedge fund Bridgewater Associates also maintained its stake in SPDR and iShares Gold Trust, the second largest bullion-backed ETF.

Gold advanced 1.7 percent in the first three months of 2018 as the dollar weakened a fifth straight quarter, helping the precious metal withstand the headwind from rising U.S. borrowing costs. SPDR Gold saw net inflows of $396 million in that period, boosting holdings in all bullion-backed ETFs tracked by Bloomberg to the highest since 2013. At 8:39 a.m. in New York, spot gold was down 0.2 percent to $1,287.43 an ounce.

In March, Paulson’s gold and special situations hedge funds were said to be returning client capital as the firm narrows its focus after assets shrank to $9 billion, from $38 billion in 2011, according to people familiar with the matter.

Filings released this month do not include hedge funds’ current position, which may have changed since the end of the quarter. Paulson uses the SPDR ETF to back his funds’ gold share classes, which offer holdings denominated in bullion for investors interested in decoupling their assets from the value of the dollar.

Money managers who oversee more than $100 million in the U.S. must file a Form 13F within 45 days of each quarter’s end to list those stocks as well as options and convertible bonds. The filings don’t show non-U.S. securities, holdings that aren’t publicly traded, or cash.

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South Africa’s Tharisa taps Zimbabwean chrome reserves

By Reuters

South Africa’s Tharisa strengthened its claim as an early mover in a hoped-for Zimbabwean mining renaissance on Wednesday by buying a slice of the chrome-rich Great Dyke region.

Zimbabwe has attracted intense interest from miners with a promise of favourable terms as it seeks to reboot its economy after veteran leader Robert Mugabe was ousted last year.

Tharisa, which mines platinum group metals and chrome in the Bushveld of South Africa, said on Wednesday it had bought a 90 percent stake in Salene Chrome Zimbabwe Limited with a “nominal upfront payment”.

Tharisa will also spend $3.2 million over the next year on geological tests before setting up a pilot project to treat the chrome deposits, which it says are premium quality and close to the surface, meaning they can be developed quickly and profitably.

The company already has a cooperation agreement with China’s TISCO – Taiyuan Iron & Steel (Group) Co. – to sell it chrome, which is used in steel production.

Like other early movers in Zimbabwe, which is still short of regulatory certainty, Tharisa is investing in stages.

“We’re not going in with a mega investment. We’re taking it systematically in a phased approach,” Tharisa Chief Executive Officer Phoevos Pouroulis said in an interview.

“Waiting for everything to settle and to be a perfect climate may be too late. It’s about a first-mover advantage.”


Cyprus-based Karo Resources, owned by the Pouroulis family that leads Tharisa, signed a $4.2 billion outline deal in March to develop a platinum mine and refinery in Zimbabwe, but it is not clear when the investment will be made.

There was a firewall between the listed company and the family holdings, Pouroulis said.

Tharisa bought the new 90 percent chrome stake from the Leto Settlement Trust, also part of the Pouroulis family holdings.

Leto will retain a 10 percent stake in Salene and be entitled to a 3 percent royalty from the sale of the chrome concentrate.

Salene has been awarded three special grants under the Zimbabwe Mines and Minerals Act covering an area of approximately 9,500 hectares (95 square kilometres) on the eastern side of the Great Dyke.

Tharisa also announced results on Wednesday for the six months to March, during which it achieved record production of chrome and platinum group metals, and an interim dividend for the first time of 2 U.S. cents per share.

BMO Capital Markets, which rates Tharisa “outperform”, said the acquisition of Salene Chrome could provide additional growth and the interim dividend beat expectations.

Tharisa London-listed shares were trading just under 1 percent higher at 1430 GMT.

(By Barbara Lewis | Editing by Raissa Kasolowsky and Alexander Smith)

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