1 00:00:05,880 --> 00:00:07,880 Speaker 1: Welcome to Fearing Greed Q and A where we ask 2 00:00:07,920 --> 00:00:11,760 Speaker 1: and answer questions about business, investing, economics, politics and more. 3 00:00:11,840 --> 00:00:14,760 Speaker 1: I'm Sean Aylmer. Emina activity has kicked off in a 4 00:00:14,800 --> 00:00:17,320 Speaker 1: big way this year with talk of a mega merger 5 00:00:17,360 --> 00:00:21,079 Speaker 1: between Rio Tinto and Glencore. If successful, it would be 6 00:00:21,120 --> 00:00:23,960 Speaker 1: the biggest mining deal ever seen in the sector, create 7 00:00:24,160 --> 00:00:27,760 Speaker 1: a business worth about two hundred and sixty billion US dollars. 8 00:00:27,760 --> 00:00:30,360 Speaker 1: It's close to four hundred billion OZI and it's probably 9 00:00:30,400 --> 00:00:32,559 Speaker 1: just the start of a year of consolidation for the miners. 10 00:00:32,880 --> 00:00:36,760 Speaker 1: Brian Sito is Vice president Energy and Natural Resource Credit 11 00:00:36,840 --> 00:00:41,520 Speaker 1: Ratings for morning Star DBRs. He's recently issued a note 12 00:00:41,520 --> 00:00:43,519 Speaker 1: about the m and a outlook for the sector, and 13 00:00:43,640 --> 00:00:47,080 Speaker 1: joins me this morning from Toronto, Canada. Brian, Welcome to 14 00:00:47,080 --> 00:00:47,600 Speaker 1: Fear and Greed. 15 00:00:48,240 --> 00:00:50,239 Speaker 2: Thanks for having me tell me. 16 00:00:50,200 --> 00:00:53,960 Speaker 1: About the Rio glen Core deal. It's been about a 17 00:00:54,080 --> 00:00:57,840 Speaker 1: decade in the making. Why are they talking to each other? 18 00:00:57,880 --> 00:00:59,360 Speaker 1: Why are they thinking about coming together? 19 00:01:00,360 --> 00:01:03,160 Speaker 2: Yeah, you're right, it's a it's a it's a decade 20 00:01:03,160 --> 00:01:06,400 Speaker 2: in the making. I think it's one of the reasons 21 00:01:06,440 --> 00:01:09,440 Speaker 2: why it's happening now is a lot of mining companies 22 00:01:09,480 --> 00:01:14,120 Speaker 2: are chasing growth. It's it's no secret Real Tental and 23 00:01:14,240 --> 00:01:17,040 Speaker 2: BEHP have been kind of jocking for position as the 24 00:01:17,040 --> 00:01:20,559 Speaker 2: biggest miner in the world. So late last year when 25 00:01:20,880 --> 00:01:25,120 Speaker 2: BEHP traded by Anglo, I think that kind of kind 26 00:01:25,120 --> 00:01:27,480 Speaker 2: of raised the stakes for Real Tental a little bit. 27 00:01:27,560 --> 00:01:31,280 Speaker 2: And here we are Real Tento and glenn Core potentially 28 00:01:31,280 --> 00:01:35,000 Speaker 2: talking about a megaburger and that that that is going 29 00:01:35,040 --> 00:01:37,080 Speaker 2: to be a pretty interesting one for sure. 30 00:01:38,080 --> 00:01:41,040 Speaker 1: Okay, So it's going to be about more than being 31 00:01:41,080 --> 00:01:43,640 Speaker 1: the largest mining company in the world. Notwithstanding that here 32 00:01:43,680 --> 00:01:45,560 Speaker 1: in Australia and I'm sure in Canada, those sorts of 33 00:01:45,560 --> 00:01:48,160 Speaker 1: things really matter Newmont, for example, to kind of a 34 00:01:48,200 --> 00:01:50,640 Speaker 1: new crested Canadian company to go an Australian gold company, 35 00:01:50,640 --> 00:01:52,720 Speaker 1: which we were very upset about. Just for the record, Brian, 36 00:01:52,760 --> 00:01:54,680 Speaker 1: But that's okay, you can have the largest gold company 37 00:01:54,720 --> 00:01:58,760 Speaker 1: over there. Point here, what are the economics of this? 38 00:01:59,240 --> 00:02:03,120 Speaker 1: Why do Why does the merger one plus one equal three? 39 00:02:03,880 --> 00:02:06,840 Speaker 2: Yeah, So it's a you know, in terms of M 40 00:02:06,920 --> 00:02:11,440 Speaker 2: and A. It gives the opportunity for for Real t Into. 41 00:02:11,480 --> 00:02:13,960 Speaker 2: For example, let's say let's say the transaction does happen 42 00:02:14,000 --> 00:02:16,920 Speaker 2: and they take over glenn Core. It gives them the 43 00:02:17,040 --> 00:02:20,880 Speaker 2: opportunity to obviously to inherit the portfolio of assets from 44 00:02:20,960 --> 00:02:25,040 Speaker 2: glenn Core, and after that happens, what usually happens is 45 00:02:25,040 --> 00:02:28,359 Speaker 2: they can pick and choose the assets they that they 46 00:02:28,400 --> 00:02:31,200 Speaker 2: really like and you know, obviously you know, keep that 47 00:02:31,240 --> 00:02:34,200 Speaker 2: within the portfolio. And these are usually assets that have 48 00:02:34,280 --> 00:02:37,640 Speaker 2: a very long mind life, very good cost structor. It 49 00:02:37,760 --> 00:02:41,000 Speaker 2: lets you at the same time kind of divest away 50 00:02:41,120 --> 00:02:44,920 Speaker 2: some of the underperformed performing assets, so you know, assets 51 00:02:44,960 --> 00:02:48,800 Speaker 2: that have short mind life, higher cost structure. So you know, 52 00:02:48,880 --> 00:02:50,840 Speaker 2: you might lose a little bit of production in the 53 00:02:51,120 --> 00:02:55,079 Speaker 2: in the process, but the fact that you're adding high 54 00:02:55,200 --> 00:02:59,560 Speaker 2: quality assets to the portfolio, that's where the attractive attractiveness 55 00:02:59,639 --> 00:03:03,120 Speaker 2: of some of these M and A activity comes in. 56 00:03:03,440 --> 00:03:06,440 Speaker 2: And it's also for the control of copper assets. 57 00:03:06,440 --> 00:03:08,800 Speaker 1: Copper, So tell us why copper matters so much to 58 00:03:08,840 --> 00:03:10,400 Speaker 1: these minus. 59 00:03:10,720 --> 00:03:14,440 Speaker 2: So the thing is, all the low hanging fruit, all 60 00:03:14,520 --> 00:03:19,240 Speaker 2: the easy copper deposits are gone. You know, there really 61 00:03:19,280 --> 00:03:22,560 Speaker 2: hasn't been a major copper discovery in the sector for 62 00:03:22,600 --> 00:03:26,280 Speaker 2: a very long time. So unfortunately, if that's the case, 63 00:03:26,600 --> 00:03:29,760 Speaker 2: you have to go out there and buy it. Coper obviously, 64 00:03:30,280 --> 00:03:33,160 Speaker 2: it's a very important part of infrastructure and important part 65 00:03:33,240 --> 00:03:36,800 Speaker 2: of the energy transition that's happening right now. And you know, 66 00:03:36,880 --> 00:03:39,920 Speaker 2: even data centers are using a lot of copper. So 67 00:03:39,960 --> 00:03:44,600 Speaker 2: it's one commodity where the demand and supply economics really 68 00:03:45,920 --> 00:03:49,720 Speaker 2: looks to looks towards a significant increase in the copper 69 00:03:49,760 --> 00:03:52,840 Speaker 2: price over the medium and long term. So the prospects 70 00:03:52,840 --> 00:03:55,920 Speaker 2: of copper is tremendous. But because you can't go out 71 00:03:55,920 --> 00:03:58,080 Speaker 2: and buy it, or if you can't go out and 72 00:03:58,160 --> 00:04:01,640 Speaker 2: you know, I just just find a copper deposits that 73 00:04:01,720 --> 00:04:05,480 Speaker 2: stare in mind it. Unfortunately, you don't really have a choice. 74 00:04:05,680 --> 00:04:08,200 Speaker 2: You have to go out there and buy it. And 75 00:04:08,280 --> 00:04:10,160 Speaker 2: you know, that's one of the reasons why you know, 76 00:04:10,240 --> 00:04:13,160 Speaker 2: real Tinto is interesting Glencore, and also one of the 77 00:04:13,200 --> 00:04:16,680 Speaker 2: reasons why BHP was is interested in Anglo American. 78 00:04:17,240 --> 00:04:19,680 Speaker 1: Okay, so let's talk about that. Be paid b the 79 00:04:19,880 --> 00:04:24,600 Speaker 1: Anglo American. Ultimately I went with tech Resources and tied 80 00:04:24,760 --> 00:04:28,240 Speaker 1: think of American and Tech. Way does all this leave BHP. 81 00:04:29,160 --> 00:04:32,520 Speaker 2: So that's interesting. I mean, I feel for BHP. They 82 00:04:32,960 --> 00:04:37,160 Speaker 2: try to take out Anglo American four times, and all 83 00:04:37,200 --> 00:04:40,279 Speaker 2: four times they were not successful. But that that's not 84 00:04:40,400 --> 00:04:43,120 Speaker 2: the end of the road. If anything, I think after 85 00:04:43,360 --> 00:04:48,800 Speaker 2: Anglo American takes over tech Resources, the combined portfolio, especially 86 00:04:48,839 --> 00:04:51,880 Speaker 2: in terms of copper, looks even more attractive than before 87 00:04:51,880 --> 00:04:56,000 Speaker 2: because Tech Resources itself they produced coppers, inc and lead, 88 00:04:56,320 --> 00:04:58,960 Speaker 2: but for the most part there their copper portfolio is 89 00:04:58,960 --> 00:05:02,599 Speaker 2: the most attractive. So post the merger, you know, Anglo 90 00:05:02,640 --> 00:05:06,000 Speaker 2: American and tech Resources they joined up to form Angle Attack, 91 00:05:06,520 --> 00:05:09,560 Speaker 2: You've got a bigger company with even a bigger portfolio. 92 00:05:09,800 --> 00:05:12,880 Speaker 2: It might be the case at BHP, you know, might 93 00:05:12,960 --> 00:05:15,520 Speaker 2: take a stab at Angle Attack once that merger settles. 94 00:05:16,160 --> 00:05:18,359 Speaker 2: But if not, you know, there are also some smaller 95 00:05:18,480 --> 00:05:20,600 Speaker 2: tucking acquisitions that can consider as well. 96 00:05:21,400 --> 00:05:24,800 Speaker 1: Why is it the miner I mean miners. You know, 97 00:05:24,880 --> 00:05:28,920 Speaker 1: juniors are always being bought by seniors, smaller mining companies. 98 00:05:29,279 --> 00:05:31,840 Speaker 1: There's forever m and a activity going in that sector, right, 99 00:05:31,880 --> 00:05:35,440 Speaker 1: But we're talking about the world's biggest miners at the moment. 100 00:05:36,839 --> 00:05:38,800 Speaker 1: Is it the fact that their balance sheets are so 101 00:05:38,960 --> 00:05:41,280 Speaker 1: much better because of the commodity price booming, They've been 102 00:05:41,320 --> 00:05:43,839 Speaker 1: able to pay down debt. Is it because boards suddenly 103 00:05:43,920 --> 00:05:49,680 Speaker 1: have a greater risk appetite? Is it because of something else, Brian, Yeah, so. 104 00:05:49,880 --> 00:05:52,359 Speaker 2: Maybe just you know, just touch on commodity prices quickly, 105 00:05:52,400 --> 00:05:55,440 Speaker 2: because that's important, perhas. You know, you know, the fortunes 106 00:05:55,480 --> 00:05:58,600 Speaker 2: of a mining company depends on the you know, the 107 00:05:58,680 --> 00:06:01,960 Speaker 2: underlay commided press and commodity prices in general have been 108 00:06:02,240 --> 00:06:07,960 Speaker 2: really on a tear since the pandemic ironl prices peaked 109 00:06:07,960 --> 00:06:10,520 Speaker 2: in May twenty twenty one. All time high was two 110 00:06:10,520 --> 00:06:14,080 Speaker 2: one hundred and thirty dollars per ton. US MECHL hit 111 00:06:14,160 --> 00:06:16,800 Speaker 2: all time high six hundred almost six hundred dollars per 112 00:06:16,880 --> 00:06:20,000 Speaker 2: ton also in twenty twenty one, and both record highs 113 00:06:20,000 --> 00:06:23,039 Speaker 2: were kind of driven by these supply shortages and also 114 00:06:23,760 --> 00:06:28,040 Speaker 2: very loose six expanded monetary policies at the time. After that, 115 00:06:28,200 --> 00:06:30,400 Speaker 2: you know, you saw uranium prices reach a record high 116 00:06:30,440 --> 00:06:33,920 Speaker 2: in twenty twenty four one hundred dollars per pound. Copper prices, 117 00:06:33,960 --> 00:06:36,000 Speaker 2: as you know, is a six dollars per pound. Now 118 00:06:36,040 --> 00:06:39,120 Speaker 2: that's all time highing and goal prices. Man, it's it's 119 00:06:39,279 --> 00:06:42,240 Speaker 2: reaching at all time high every single Liz. So because 120 00:06:42,240 --> 00:06:47,040 Speaker 2: of these stronger commodity prices, that leads to stronger valuations 121 00:06:47,320 --> 00:06:51,359 Speaker 2: right stock as higher stock prices, bigger market caps bigger 122 00:06:51,480 --> 00:06:55,799 Speaker 2: enterprise enterpose values. And it's in general it's much easier 123 00:06:56,120 --> 00:06:59,479 Speaker 2: to convince a board of a mining company to do 124 00:06:59,520 --> 00:07:03,159 Speaker 2: a deal and sell themselves when your valuation is trading 125 00:07:03,200 --> 00:07:05,800 Speaker 2: at multi year highs or even all time highs, as 126 00:07:05,800 --> 00:07:08,560 Speaker 2: opposed to when the stock is trading at all time 127 00:07:08,640 --> 00:07:11,240 Speaker 2: low You don't really make a deal then because it 128 00:07:11,280 --> 00:07:14,400 Speaker 2: feels like you're leaving something on the table. So, like 129 00:07:14,440 --> 00:07:17,880 Speaker 2: I said, your your valuation in the market is important, 130 00:07:18,000 --> 00:07:21,120 Speaker 2: and right now with everyone's valuation is doing so well, 131 00:07:21,440 --> 00:07:23,400 Speaker 2: it's just much easier to do a deal. 132 00:07:23,960 --> 00:07:26,480 Speaker 1: What's the risk of not doing in Dale if you're 133 00:07:26,760 --> 00:07:29,000 Speaker 1: if you know, I'm running bah Pay or I'm investing 134 00:07:29,000 --> 00:07:32,760 Speaker 1: in Bahpy. What is the concern if we have Anglo 135 00:07:32,880 --> 00:07:37,720 Speaker 1: Tech and we have Rio Glencore. Obviously Valley is a 136 00:07:37,720 --> 00:07:42,680 Speaker 1: big competitor in iron or to uh To Bayhpay likely 137 00:07:42,680 --> 00:07:45,000 Speaker 1: in Australia for the Skew middles as well. But what's 138 00:07:45,000 --> 00:07:47,080 Speaker 1: the risk to Behpay of not doing anything? 139 00:07:47,960 --> 00:07:50,920 Speaker 2: So the risk of doing nothing is real, and I 140 00:07:50,960 --> 00:07:53,680 Speaker 2: think there's there's two ways to look at it. One 141 00:07:53,720 --> 00:07:56,200 Speaker 2: way to look at it is that these minner of 142 00:07:56,200 --> 00:07:58,680 Speaker 2: the posits, which is what these miners own. They own 143 00:07:58,720 --> 00:08:01,640 Speaker 2: these minner of the pass their finite. So in the 144 00:08:01,720 --> 00:08:05,200 Speaker 2: absence of absence of any expiration upside, once you've reached 145 00:08:05,200 --> 00:08:08,400 Speaker 2: the limits of minimization and the deposit gets mined out, 146 00:08:08,600 --> 00:08:10,840 Speaker 2: that's it. That's the end of the mind life for 147 00:08:10,920 --> 00:08:14,560 Speaker 2: the operation. If so it is no when it is 148 00:08:14,600 --> 00:08:18,400 Speaker 2: no longer in production, you basically lose a revenue stream 149 00:08:18,440 --> 00:08:21,760 Speaker 2: within your portfolio. So all so that means, all other 150 00:08:21,760 --> 00:08:24,880 Speaker 2: things being equal, you're getting smaller if you're doing nothing. 151 00:08:25,600 --> 00:08:28,080 Speaker 2: And another way to look at it is, you know, 152 00:08:29,160 --> 00:08:31,600 Speaker 2: building a mind takes a lot of time if you 153 00:08:31,640 --> 00:08:35,000 Speaker 2: start from scratch, if you go through the mind development 154 00:08:35,080 --> 00:08:38,400 Speaker 2: psycho at a minimum, it's a ten year process to 155 00:08:38,440 --> 00:08:40,960 Speaker 2: build a mind. There are many stages you have to 156 00:08:41,000 --> 00:08:44,560 Speaker 2: go through. You have to go through expiration, there's resource drilling, 157 00:08:44,920 --> 00:08:49,960 Speaker 2: resource calculation, economic studies, permitting, construction, and then finally you 158 00:08:50,000 --> 00:08:53,080 Speaker 2: get to construction. So if you're a mining company that 159 00:08:53,080 --> 00:08:56,600 Speaker 2: that that has an aspiration of getting bigger, a ten 160 00:08:56,679 --> 00:09:00,160 Speaker 2: year timeframe to get bigger is probably too slow, too 161 00:09:00,240 --> 00:09:03,520 Speaker 2: too long. A lot of invest investors are simply not 162 00:09:03,679 --> 00:09:06,319 Speaker 2: that patient and they want to see growth happen quickly 163 00:09:06,760 --> 00:09:09,520 Speaker 2: and that's where where the appeal of acquisitions come in. 164 00:09:10,000 --> 00:09:14,320 Speaker 2: Growth happens quickly, and they happen instantly. So so as 165 00:09:14,360 --> 00:09:17,640 Speaker 2: you can imagine, if your peers are making these acquisitions, 166 00:09:17,640 --> 00:09:21,040 Speaker 2: who grow bigger quickly, you really don't have a choice. 167 00:09:21,720 --> 00:09:23,240 Speaker 2: You got to do it as well, or you're given 168 00:09:23,240 --> 00:09:23,839 Speaker 2: me be left behind. 169 00:09:24,400 --> 00:09:26,280 Speaker 1: I don't really want to get into the JO politics 170 00:09:26,320 --> 00:09:28,280 Speaker 1: too much because we always talk about what's going on 171 00:09:28,480 --> 00:09:31,720 Speaker 1: in in uh, you know, the US, Europe, et cetera. 172 00:09:32,080 --> 00:09:35,320 Speaker 1: Having said that, when you have such long time frames 173 00:09:35,360 --> 00:09:40,319 Speaker 1: in terms of getting projects on board, plus m and 174 00:09:40,360 --> 00:09:45,800 Speaker 1: a does what's the US China relationship? The Donald Trump 175 00:09:45,840 --> 00:09:49,120 Speaker 1: factor doesn't actually play that much into the sector. I'm 176 00:09:49,120 --> 00:09:51,400 Speaker 1: sure it does on a day to day sense, but 177 00:09:51,480 --> 00:09:53,560 Speaker 1: in terms of long term strategy, in. 178 00:09:53,720 --> 00:09:57,840 Speaker 2: Terms of strategy, probably relative to some of the other sectors, 179 00:09:57,880 --> 00:10:02,160 Speaker 2: I less. So, you know, my deposits are you know, big, 180 00:10:02,440 --> 00:10:06,839 Speaker 2: chunky economic deposits are rare, especially the high grade ones 181 00:10:06,840 --> 00:10:09,440 Speaker 2: that the one that have a really good cost structure. 182 00:10:09,720 --> 00:10:13,280 Speaker 2: So minors go all over the world finding these assets. 183 00:10:13,280 --> 00:10:19,120 Speaker 2: So unfortunately, finding economic deposits come first and the gego 184 00:10:19,200 --> 00:10:21,040 Speaker 2: political risk comes second, which is why a lot of 185 00:10:21,120 --> 00:10:24,240 Speaker 2: these miners HP real tentto and you see that even 186 00:10:24,240 --> 00:10:28,280 Speaker 2: some of the mid tiers they're divers fight globally. They're everywhere. 187 00:10:28,320 --> 00:10:34,440 Speaker 2: They're in Australia obviously, Canada, US, Africa, basically anywhere they'll go, 188 00:10:34,559 --> 00:10:37,959 Speaker 2: they'll go. You know, it's always finding the deposit first 189 00:10:39,000 --> 00:10:41,680 Speaker 2: and then they deal with the geopolitical risk later. 190 00:10:42,360 --> 00:10:43,960 Speaker 1: Brian, thanks for talking to fear and Greed. 191 00:10:44,280 --> 00:10:44,960 Speaker 2: Thanks for having me. 192 00:10:45,280 --> 00:10:48,560 Speaker 1: That was Brian Theito, Vice President Energy and Natural Resource 193 00:10:48,559 --> 00:10:52,240 Speaker 1: Credit Ratings for morning Star DBRs. Reminder, this is general 194 00:10:52,240 --> 00:10:54,760 Speaker 1: information only. You should always think advice tailored to your 195 00:10:54,800 --> 00:10:57,920 Speaker 1: circumstances before making any investment decisions. I'm sure and I 196 00:10:57,960 --> 00:11:01,440 Speaker 1: omen this is fear and greed Q and A.