While gold may be attracting the attention of investors, JONATHAN BROOKS, head of mining and metals and partner at European law firm Fieldfisher believes that the underlying trend and interest going forward is in technology metals. GERARD PETER reports.
Brooks states that the COVID-19 pandemic has brought to the fore climate change and humankind’s impact on natural resources.
“During the pandemic people have become more conscious of climate change and the need to move towards a zero carbon economy. Therefore, as a firm, we are receiving lots of enquiries from companies that have technology metals projects, whether they be lithium, tin or other more exotic items on the technology metals list,” he states.
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Now, while there is considerable interest in technology metals, Brooks avers that it is still a tough ask to get investors interested in these projects.
“There is still a flight to gold at the moment but beyond the headlines around gold, there will be long-term interest in technology metals as projects come into play and reach production status,” he says.
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Brooks explains that one of the reasons why it is a challenge to attract investors to these projects is because some of the technology metals are quite ‘esoteric’.
“Little is known about the markets for some of these metals; their pricing and trading and where prices are heading which puts equity investors and debt providers off some of them.
“Also, technology moves on. For example, Tesla wants to cut cobalt out of the production of the batteries in its electric vehicles. So, if people are taking Elon Musk seriously that he can develop a viable technology without using cobalt, then that obviously has an effect on cobalt prices.”
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Securing investors’ interest
Therefore, Brooks states that it takes a lot of education for investors to understand the technology metals market.
“The price of a number of such metals are fixed by over-the-counter trading or between a producer and a particular off-taker. As such, price transparency is difficult to determine and this does hold back investment from the traditional institutional investors.”
When it comes to securing investment for technology metals projects, Brooks advises that a mining company should first educate investors about its market and also secure an off-take agreement.
“Firstly, it is important to understand how the pricing of these metals works and to pass this education onto potential investors. Secondly, it is best to get at least an expression of interest from an off-taker.
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“The expression of interest might heavily caveated by the off taker, but it is important to demonstrate to potential investors the guaranteed quantity and price of future sales and how this price will be calculated.
“A company needs to look, if possible, at well-known benchmark pricing mechanisms to understand how these prices will be calculated.”
Furthermore, Brooks states that ESG will be a determining factor when mining such metals in a responsible and ethical manner.
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“The whole discussion around ESG matters has really gathered pace this year, no doubt encouraged by the COVID-19 pandemic.
“For example, there is a lot of attention being given to conflict minerals from the likes of the DRC and manufacturers and investors want to ensure that supplies are properly sourced and that all international standards are followed, right from production all the way through the supply chain,” he concludes.