In the tough world of finance a touch of humour when defending deals can diffuse acrimony in the boardroom.
You would not expect the hallowed halls of financial institutions to be studded with laughter or humorous banter, but then you have not encountered Mark Tyler, Nedbank Capital’s senior investment banker, resources division. His sense of humour and light-hearted approach has diffused many tense encounters in the boardroom.
“The best illustration I have about the value of humour is that we used to take a light-hearted stance when approaching our Credit Committee. Often, when there is some humour involved, people are apt to speak more freely and without subsequent rancour. We have to approach the Credit Committee to obtain approval to undertake financing transactions and given how passionate the team is that puts a deal together, it is very hard to accept a decline from the committee.’’
He explains that one has to make sure that defending a deal does not destroy the relationship between the parties involved, as they have to work together in the future. “So it’s very useful to maintain a light-hearted approach (even though the matter is very serious) so that people can say things without fear that could lead to bad blood.”
Tyler is not your usual banker, he is also a qualified metallurgist. He spent 12 years as a researcher before joining the Industrial Development Corporation (IDC) in 1996 where he developed and lent to large mining metal processing projects before joining the Nedbank Group in 2001, where he is now responsible for developing the resources banking business.
In an exclusive interview with Leadership Magazine, Tyler, who forecast some of last year’s mining economic trends at the Mining Indaba, looks back on his predictions and gives us a glimpse into this year’s trends.
Tyler says that 2013 was tougher than even he had expected. “Share prices, especially among the juniors, dropped even more in 2013, from an already low base and the major equity markets were very depressed. The North American markets were all but shut last year, and commodity prices declined a bit from where they were at the beginning of the year.”
Tyler explains that the ‘big three’ most important markets for mining equity are the Toronto Stock Exchange, the Australian Stock Exchange and the London Stock Exchange and they have not improved since the downturn in 2011. “In an environment where you can’t make money out of share price growth, investors have demanded of the major mining companies that they deliver dividend returns. That has, in turn, pushed the majors into capital conservation mode. They have cancelled projects on a wholesale basis and embarked on cost cutting exercises in an effort to increase profitability.”
He says that junior miners have always lived on equity and the Canadian-listed companies, in particular, have funded even their project construction with equity. With markets shutting down, the first casualty was exploration as companies cut back dramatically. But it also affected project construction. While banks and other lenders to the mining industry have been ready to lend, the juniors still have to raise some equity to go with the debt and it has been very difficult for them to do this.
Paradoxically, in terms of debt-financing South African projects, which were affected by strike action and low production last year, Tyler explains that the platinum industry was the least likely to be affected and this is because of demand. “If the industrialised world wants clean air in cities, it has to have auto catalysts, and if you want platinum for auto catalysts, you have to pay what it costs for South African producers to extract the metal in the long run.
“I think what we are seeing in that industry at the moment is weaker than expected demand, which means that metal prices aren’t moving up in response to labour cost pressures. I think that will change over the next year or so. Platinum projects that have faced financing difficulties are more a victim of European economic woes than labour issues,” explains Tyler.
However the outlook for the gold industry is different, as South Africa is a price taker, not a price setter and the industry is labour intensive. Strike action in this sector increases labour costs, with lost production making it very difficult for producers to maintain profitability.
“I think the outlook for other commodities is mixed, highly mechanised industries such as coal and iron ore will continue to do well and iron ore prices will remain very high for the immediate future, but metals like chrome and increasingly manganese, are going to struggle with low commodity prices.”
Although it is not likely that the mining sector is going to see a dramatic leap in commodity prices in the short term, Tyler says that in the medium term the commodities with the best prospects are platinum and diamonds, where polished diamond prices are at historically high levels, with structural issues with the market being the only reason that rough diamond prices have not taken off.
“I think fundamentals are good for copper — demand will grow, even at modest Chinese growth rates and supply has always surprised on the downside. I think US shale gas developments are causing a structural change in the steam coal market that is going to keep downward pressure on prices at Richards Bay, and we are in for a big correction in iron ore prices when the entire new infrastructure that the majors are installing comes on stream. Mineral sands prices seem set to remain sluggish. I think the real competitors in terms of prices will remain chrome and manganese.”
Tyler foresees more weakness in the Canadian and Australian dollars as befits resources based economies than has been seen in the rand.
In 2012 Nedbank Capital launched and expanded its oil and gas unit and financed large oil and gas projects in Angola and Nigeria. Tyler says these projects did well in 2013.
“We launched the business just before the Euro crisis when the French banks, who are traditionally very large players in oil and gas financing, reduced their participation in the market as a result of them needing to conserve capital. That allowed us to enter the market in 2012 in a major way and make a name for Nedbank in what is normally a very competitive space.”
The reason for this is that Nedbank has a very strong team based in London, who Tyler says, managed to keep up the momentum in 2013. Nedbank has now become a recognised player in the sector and has participated in transactions of up to $100 million in West Africa, Angola, Europe and the Mediterranean.
According to Tyler, Nedbank’s international mining finance team had their best year in a while, which he says is probably due to an increased appetite for debt from the junior miners in the face of difficult equity markets, but it is also due to years of building a presence in Toronto, Perth and London. “It’s been a long struggle to keep acquiring deals, however Nedbank’s commitment to the business and the perseverance finally seems to have paid off.”
Some of the deals Nedbank has led include funding for Gem Diamonds in Lesotho and Sierra Rutile in Sierra Leone. Tyler says Nedbank is ‘considerably chuffed’ in having closed funding in December 2013, for Aureus’s new Liberty gold mine in Liberia, which is the first modern gold mine in that country.
“Support from South Africa’s Export Credit Insurance Corporation saw us conclude the transaction during a 25% drop in the gold price without resorting to hedging and all of this led to the deal being awarded the Development Finance deal of the year at the Mines and Money awards function.”
Expounding on African exploration in 2013, Tyler explains that it all but evaporated on both the TSX and the ASX with most of the juniors going into ‘cash conservation’ mode, cutting back dramatically on grass roots exploration, although a number of higher grade gold prospects in West Africa are making good progress.
Lower grade prospects, including early stage iron ore prospects have struggled and Tyler says financiers think that most of the exploration dollars not spent on near-mine exploration in South Africa are going into West Africa for gold and iron ore, or to the Zambian and Congolese copper belts.
Mining industry reports say that merger and acquisition (M&A) deals have fallen sharply in 2013 and Tyler agrees, commenting that they have dropped off from a high of over $100 billion in 2011 to just under $60 billion in 2013.
According to Tyler this was mainly driven by the fact that while many companies are either take-over targets or are trying to sell assets, there are not many buyers in the market.
“I think there is a growing appreciation among them that, even poorly performing mines are a lot cheaper and less risky to bring into production than some of the new projects in the pipeline.”
In 2014 Tyler predicts that we will see fewer asset disposals from the majors than was expected at the beginning of 2013, as there are not many instances where one company has cash and the other good assets and there are very few juniors with cash.
Tyler also says it will be difficult for mining companies to find capital. “I think it’s going to be quite hard for mining companies to find capital over the next few years. Not impossible, just very difficult.
“At Nedbank we are looking very carefully at ways that we can go about setting up a team that will be able to assist companies to find a holistic funding solution – debt and equity. I think it’s going to be required in order to make our advisory and debt deals work and it’s a good opportunity to get involved across the spectrum of funding.’’
But it is not all gloom, globally higher grade gold deposits are looking attractive and Tyler remarks that there were one or two good stories last year involving good grades. He feels that low grade operators are going to feel the pain as the days of large, low grade deposits are over for now, although there are still some good ones in West Africa.
“Also looking good are iron ore projects that can be brought on stream very quickly as they will be able to take advantage of the window that exists in the market at the moment while world production is constrained by infrastructure bottlenecks.”
Although diamonds peaked about two years ago and there have been no new discoveries recently there are a few new deposits under development, which Tyler thinks are good stories.
“Higher grade copper deposits in stable jurisdictions are looking good too, but most of the downside surprises in copper production seem to be extraneous factors like labour problems, or electricity supply so good quality deposits that won’t face these sorts of issues will be good bets, and we think that some of the minor base metals such as zinc and tin will offer good opportunities.”
So who is the real Mark Tyler when he is not wheeling and dealing at Nedbank? The witty financier is an adrenalin junkie who get high on dangerous sports and exploring remote and often dangerous geological outcrops. He is also an avid reader of scientific books, a lover of fine dining and fine (women) chefs.
“Those who know me will know how disturbing it has been for me to witness the recent very public tribulations of (British celebrity chef) Nigella Lawson. It’s almost enough to make one want to choose another guest to go with the four cardboard cut-outs at my ideal dinner party for six.”
It has been difficult for Tyler, who is based in London to separate what he does when he is not working, from work. Now that his children have left home and gone to university his travel schedule has become easier to manage as there is less need for him to juggle his weekends and allocated midweek nights with his children to fit in with the time that he is at home.
“I have therefore come to make an effort to tack some personal travel on to work trips. But all that pressure from my family meant that most of my travels seem to involve rocks in one way or another – going to look into an active volcano, check out the Burgess Shale in the Rockies or the stromatalites at Shark Bay and so on.”
When he has time off to relax and let off steam, Tyler likes nothing better than the thrill of high-speed tobogganing down steep narrow ice-packed slopes. “I enjoy the adrenaline rush of going down a hill at a very fast pace, that is, on a toboggan at the Cresta Run for instance, or on a skeleton at Whistler. When I’m not doing hills, I either go skydiving or do bungees. Heights don’t bug me too much, but even after having done an advanced open water scuba course, 30 metres underwater seems a long way down. Anyway, it seems like a very inconvenient way to see some rather garishly coloured fish!”
Tyler says his love of scientific research and his metallurgy background has stood him in good stead to think critically about all things. “It’s good training for life and good training for business. If research weren’t such an underpaid profession, I’d recommend it to everyone.”
So what made Tyler take the step from research into mining investments and equity? When he joined the IDC it was to be part of the technical side of project development, but at that time the corporation had also become the best project finance training academy in the world and everyone that worked in its financial activities were expected to train to do financial evaluations.
“The five years I spent there was undergraduate and post-graduate finance training rolled into one and was combined with practical training. I learnt more from my boss at the time, Gerrit Kruiswijk, than I have learnt from any other person in my career, not only in terms of finance but also in terms of approach to things and attitude to project development.”
Tyler thinks that it is important for graduates wanting to specialise in equity and debt investment to spend enough time doing technical work in order to understand the industry well.
“I have seen so many young graduates trying to move very quickly from university into finance without spending a few years working in a technical role. It’s very useful to get a finance qualification very soon after graduating, however, those first three or four years of technical work will be invaluable for the rest of their careers.”
Despite being witty with an outgoing nature Tyler is convinced he is not a natural team player. He says he doesn’t have a leadership motto to share, but there are some lessons he has learnt since he took over the unit ten years ago and watching it grow its business and profits over ten times in that time.
He explains that the recipe for achieving this is simple.
“If you have a relatively small team and they enjoy what they do, the things they can deliver are incredible. I think you need to ensure that people enjoy what they are doing, that they have sufficient time and opportunity to talk to each other a lot during the day or over a drink after work, on a mine site visit, or while doing something fun as a team.”
Tyler concludes that ideally the job of the ‘shift boss’ or team leader is to give people the freedom to think and make decisions for themselves and to try not to do everybody’s work for them, not even to tell them what to do, but instead to create a fun environment and to ensure that there is a high degree of focus.