Interview with Anthony Milewski, Chairman of Nickel & Cobalt Royalty & Streaming company, Conic Metals (TSX-V: NKL)
CLICK HERE to watch.
Milewski gives us his insight into investing in the nickel market and builds on Mark Selby’s recent nickel interviews with us. What are the red flags and what are the positive signals when thinking of investing in nickel projects? What stage projects have what what types of risk profile? What are the signals? Can you build a Hpal project for less than $1Bn? Horizonte Minerals (AIM: HZM) says yes. What do Mark Selby and Anthony Milewski say?
1:23 – Fall of Indonesian Nickel Production and Price: The Reasons
5:45 – High Capital Intensity: Is an HPAL Project Possible Under $1B?
10:45 – Types of Investors to Invest in Nickel: Should They Invest Now and in What? 13:51 – Key Parts to Look at When Investing; (13:55) Exchange, (16:03) Jurisdiction, (20:13) Project Type
21:45 – Chinese to Fund Nickel Projects: Where Does the Price Need to be to Interest Western Financing?
26:32 – Management Teams: What Questions Should You be Asking Them?
31:20 – Types of Projects for High and Low Risk Tolerance
33:17 – A Minute on Conic: Are They Looking at Dividends?
34:18 – Capital Structure Pet Peeves: What Should Cause You Concern?
39:30 – Share Register: Importance of Management’s Involvement
Matthew Gordon: Hello, welcome to Crux Investor. We’re here today with Anthony Milewski, he’s the CEO of Conic Metals, but we’re not going to talk about Conic Metals today. You’re going to tell us about the world of Nickel.
Anthony Milewski: I will, but by the way, I’m the chairman.
Matthew Gordon: You’re the chairman!
Anthony Milewski: I’m the chairman.
Matthew Gordon: You got promoted? 😉
Anthony Milewski: Non-executive chairman.
Matthew Gordon: Really? They didn’t
want you doing too much? 😉
Anthony Milewski: I don’t want to cause any trouble.
Matthew Gordon: Okay. First question,
and please don’t blame the Coronavirus for this one.
Anthony Milewski: It’s definitely the Coronavirus’
Matthew Gordon: That’s literally all
I heard last week for everything that went wrong in a company was the Coronavirus
even though it’s been going only a month and their share prices have been
dropping for months. But you’re not going to do that. Indonesian Nickel ore
production fell significantly last year. Why?
Anthony Milewski: Yeah, I think there’s probably a couple reasons. I think one reason is Nickel prices are just off. I mean, I think that’s part of it. But there are other reasons. There was a ban instituted in Indonesia where you had to ship a refined product. So, depending on what smelters are paying, depending on the logistics of those smelters, certain producers could sort of be shut out of that market because they can’t ship direct anymore. So, I think it’s a combination of Nickel price and just the factors around the Nickel export.
Matthew Gordon: Right. And you said
the Nickel prices dropped and I think we talked about this previously in other
interviews. But what’s your rationale for that? Why do you think that’s
Anthony Milewski: Well, I think first of all, even as
much as we want to talk about future demand for electric vehicles, it’s driven
by stainless-steel. That’s really the driver of the market. Now, last year, we
saw a big draw down in LME inventories. And we think that that was probably
hedging and forward buying. But, notwithstanding that, if you look at the last
month, LME inventories are kind of right back up there. And with the Corona
virus and a decrease in the stainless-steel demand, with Nickel having tapered
off a little bit, it makes sense that production for a marginal producer would
Matthew Gordon: Conic is a royalty and streaming company. We can talk a little bit about it. You’ve made some big bets on Nickel. You still believe that the EV thematic is holding true. You did say last time we spoke, it’s probably a couple of years out in reality, which I think was a nice reality check for the market to make people stop and think, because everyone gets very excited about these things. So, your view on the numbers hasn’t changed?
Anthony Milewski: No. I mean, look, if you look at
Cobalt, if you look at Lithium, these false dawns where everyone gets excited
about adoption of electric vehicles, which is real, and I’m a huge proponent
of. But I think in certain cases that market can really move. You have a sell
off, then you have reality set in, and then you can actually have that real
move. And what we see with Nickel, we didn’t see that extreme move that we saw
in both cobalt and lithium. We did see a move. And I think the reason, by the
way, for that is that, stainless steel drives the Nickel market, whereas in
cobalt and lithium, small incremental demand can really change the dynamics of
the market. So, it’s stainless steel in a way is a more robust market. And so,
it’s harder to really jam it up on the idea of some future demand. And so, we
did see a bump. But I think now what you’re really going to have to see is a
higher price to bring back in more speculators and interest.
Matthew Gordon: Timing for that?
Anthony Milewski: It’s impossible to say. And I do
think what’s happened in Rhodium and Palladium recently is kind of interesting
and potentially telling. And that is to say, both those markets had people out
there for five, six, seven, eight years talking about the pending doom and
gloom scenario. And actually, as it turns out, they’re right. I just read this
article that this morning about people stealing catalytic converters in London.
So, they turned out to be right. And where I’m going with that is what’s
interesting with Nickel and some of these other metals, if we don’t get
investment into projects, bringing more supply on in the future, that chart ultimately
will start to look like a palladium or rhodium chart. And I think that’s not
healthy for a commodity but it’s a reality when it takes years to bring
additional supply on line.
Matthew Gordon: This probably was the
Coronavirus but you promised to write me an article some weeks ago.
Anthony Milewski: It’s coming!
Matthew Gordon: I’ve got half of it
here. So, we’re going to talk about that half of it.
Anthony Milewski: The good half!
Matthew Gordon: And just for everyone
at home, this article is really to talk about being able to pick winners and
losers in the space because in all commodities there are companies which are
going to make it. Other companies perhaps will struggle a bit. And we don’t want
to waste anyone’s time talking about companies which perhaps are going to
struggle for whatever reason. So, we’re going to talk about some of those
headlines for Nickel. They kind of apply to all commodities in a way some of
Anthony Milewski: Well Nickel is unique. The one I found really
interesting. And I’ll tell you why. Because Nickel, unlike Gold, you could get
a Gold CEO in here who would potentially have a project that would need under $100MIL
of CapEx for production. That’s possible. Nickel is very, very capital
intensive. In fact, I would argue that Nickel is possibly the biggest destroyer
of value over 20 years with the HPAL projects, projects like Goro ended up
costing $8Bn. And to name
a couple, Ambatovy, you have Ravensthorpe…
Matthew Gordon: Here’s one. I’ve got one. So, we’ve had a bit of a debate online because we got a quote from someone you know, Mark Selby, saying you can’t build a HPAL project under $1Bn. We’ve got an AIM-listed company, the management team, CEO, saying that’s not true. He has got some new Chinese technology coming through and HPAL will be able to be delivered for much less than that. Are you a buyer of that? What is this new technology?
Anthony Milewski: Yes. So, here’s what I would say. I
think you’re talking about two separate things. If you’re talking about a brand-new
stand-alone project, I’m unaware of a single instance where someone’s done that
for under $1Bn. When they’re not relying on infrastructure, when it’s a new
project sitting in the middle of the jungle, wherever it is, I think that’s not
happening anytime soon. However, if you’re talking about specifically about some
of the stuff that the Chinese are doing with HPAL in Indonesia, that’s totally
different, because what they’re doing is, they’re tacking on $1Bn onto $7Bn dollars
Matthew Gordon: So, there’s the
infrastructure component and with the processing plant component. So, can you
build a plant on top of a resource for a billion bucks?
Anthony Milewski: Can you build a plant on top of an existing producing mine in Indonesia where the Chinese have already spent $7Bn? Yes. So, can you go from $7BIL to $8BIL? Yes.
Matthew Gordon: Greenfield site?
Anthony Milewski: I would be hard pressed to give a
single example of the world where you could do that. This is import about
investing. So, I think when you’re looking at Nickel names, I think you have to
ask yourself, what is really fundamentally the process? Not are we sugar-coating
it. Is it HPAL? And if it’s HPAL? The answer is this is an HPAL project I think
you have to think it’s going to be in the billions of dollars. And so, if
you’re thinking about a speculative play, it’s a big ore body, will it go up
when Nickel moves? Answer might be yes. But if you’re thinking will this be a
mine? I think the answer is going to be most likely not.
Matthew Gordon: So, how would a
company get a Feasibility Study done by an independent contractor to tell you
it’s going to cost less than that for HPAL project?
Anthony Milewski: Well, I can’t speak to any specific
situation, but I think we just generally look at Namascar. Now they’re in
receivership now and they had, I think, no less than four of the top contracting
firms working on that project or consultants at contracting firms. They missed
it by, what, $500M. So, I think it happens, I think is the answer, it happens.
And, I can’t speak to why one person will miss it, or another person will miss
it. But HPAL, one of the things to remember about HPAL is the tailings really should
be in an environment, especially like if it’s tailings sitting behind a
tailings dam, need to be in an environment where you evaporate more water than
rains in a year. So, if you’re in a place or a situation where you like have
torrential downpours and you’re not going to evaporate like you just have a
real problem with tailings. And in a post valley world, I think globally
regulators are thinking about tailings. So, to take a step back from all that
and talk about just investing in Nickel, I think you need to think about is this
a sulphide or is this a laterite. Because at least, like in (RNC) Dumont was an
example in Canada, potentially (Giga) Turnagain someday, those projects, the
processing is very simple and straightforward, like everyone knows how to do
that. You can come up with a number that’s real. It might be $1.5Bn for Dumont.
I don’t know what that number is going to be, but that’s the number. Whereas if
you go into some of the Australian HPAL processes or elsewhere in the world,
frankly, you don’t know how long a piece of string is. That doesn’t mean you
shouldn’t necessarily own those names because when the Nickel tape happens any
big research will go up because it’s just the case that that will be true. So,
you can own a basket, but specifically, you need to trade those names, because
if you look through the cycle, it’s hard to see after Ambatovy, after Ravensthorpe, after Goro, it’s hard to see
that anyone is going to build a greenfield HPAL project. Different than
brownfield expansion, tagging onto an existing project, but a greenfield
project is pretty unlikely in my view.
Matthew Gordon: Ok, so let’s veer away from that, HPAL at the moment, and come back to investing because you gave some clues about the sorts of things people should look for. First of all, we should probably identify the type of investors who would invest a Nickel because this is not an overnight day trading scenario or even get out in the next six months or so. If you’re coming in now and I guess you would advocate getting in now, or would you?
Anthony Milewski: Well, I would say, what do you think
the average amount of money your investor has to invest, $5,000, $10,000?
Matthew Gordon: I don’t know. There’s
so many, the average is difficult.
Anthony Milewski: Well, let’s just say you have $1 to
invest in Nickel, I don’t think I would just go by a dollar worth a Nickel
equity today. I think you want to cost average in over time. But certainly,
what we saw in Rhodium and Palladium and a lot of other commodities is they can
move really quickly. And if you actually do subscribe to this notion that EV
adoption is generating new demand, it’s going to impact the price of Nickel. If
you subscribe to that notion, that investment thesis, I think you over time
want to average in to these Nickel names. I wouldn’t go spend all my Nickel
allocation today. Especially as we’re faced by a lot of uncertainty around coronavirus.
But I would think that over time you would want to leg into it.
Matthew Gordon: I think that’s fair, and again, reasonable. Like you say there’s a lot of people who come and talk to us and tell us how much of their commodity they’re going to put into a battery and the EV revolution is going to change their company literally overnight. You need to buy now. And I just think sometimes for a lot of companies that’s not true. They’re so far away, so far removed from the EV chain.
Anthony Milewski: Well timing is tough. I look at
lithium right now. Some of these names, they move overnight. Lithium Americas,
I mean just on a rocket ship lately. They announced this deal, which
effectively takes away the operatorship. They get money and now it’s going to
be built. So, this thing goes on a rocket ship, but I would just say as an
investor, it’s hard to predict. So one of the things I would consider, I guess,
when I look at some of these names is making sure to own some names that don’t
require capital raises because if between now and that move, it’s two years,
let’s just say, if you look into that balance sheet and you can see that
they’re going to need two capital raises, well just wait and go in when the
capital’s raised. I think in particular for the juniors, this is relevant
because from my perspective, if you could invest in Nickel like let’s own a
basket of names. So own Independence Group, this is an adult company. It’s
producing Nickel and it’s hard to foresee that they can raise capital. You’re
not going to get as much torque
as you would in like a Giga and with Turnagain. But at the same time,
it’s a much safer, safer bet. So, I think you have to have like a range of
Matthew Gordon: Right. Okay. And that’s just Nickel we’re talking about. Obviously, people have got lots of options, not just mining, not just Nickel the commodity, but lots of options within mining and outside of mining and portfolio approach which most sensible people would advocate. Let’s come back to some specific things that you’ve started writing about in terms of things that you look for. The first thing we talk about is the exchange. You’ve got to work out which exchanges you’re comfortable being on. Why?
Anthony Milewski: Well, if you look at different
commodities, do better on different exchanges.
Matthew Gordon: Is that true for Nickel?
Anthony Milewski: Yes, it’s actually Nickel that’s does
better on the ASX. If we’re being honest, the ASX and the reason is, is that
retail investors in Australia understand Nickel, there is a larger number of Nickel
publicly traded companies for Nickel. And so, I would say, depending on where
the asset is, that makes more sense. Now, for Gold Canadian and North American
producers do better generally speaking, on the TSX. Australian producers do
better, there’s always exceptions, on the ASX. So, I think understanding comps
for that exchange is important because if you have peers, which look sort of
similar, that means you’re going to have research coverage. It also means you’ll
have like a general body of knowledge among retail and institutional investors.
So, it’ll be easier for them to get up the curve and potentially invest in the
name that you’re looking at. So, it is always important to think about the peer
groups. Now in a bull market, of course, probably it doesn’t matter as much.
But in a market like this I think you can actually have a quite a bit of upward
support in these names when you’re on the right exchange.
Matthew Gordon: OK. That’s interesting to me.
Anthony Milewski: I can do a data-point, not just to
Matthew Gordon: Please.
Anthony Milewski: Conic Metals. The primary asset of
Conic Metals is the Ramu Nickel joint venture we discussed. That joint venture
assets looking almost exactly as Conic does today. Not quite as good because
there’s more in Conic trading on the ASX, was trading at kind of $100/$110M
market cap. Today on the TSX, it trades at $3M. So, there’s a bunch of other
factors in there, but it’s just one single example. I think you can find that
across different commodities.
Matthew Gordon: Ok. So, what we’re going to do, we’re going to piece together lots of moving parts here and you’ve got to consider all of these. So, you’ve sort of talked about project stage. So, if there’s anything more you want to say, we can sprinkle it in later, but I want to talk about jurisdiction. And that kind of comes the point we made earlier with regards to where your next Nickel project is. Some countries are better than others. You’re dealing with Southeast Asia, Indonesia. You’ve got the Canadian plays. You’ve got Russians. There’s a lot of big players out there. Why is jurisdiction specifically important to Nickel?
Anthony Milewski: Well, let’s look at Cuba. So,
Sherritt, which is an important producer of Nickel fundamentally has a problem
where a lot of investors are not allowed to invest in that company because
they’re US, because the fund has U.S. investors. So, then you have a problem
with Cuba, even though great mine, great asset, right? Russia, maybe you don’t
have restrictions, but at the same time, people perceptions about Russia. And
so when you kind of go around, clearly the best Nickel assets to invest in
would either be in Australia or Canada from perspective of the market. But
there are interesting things in Africa as well like this project, I think it’s Sama
Resources. It is potentially a large discovery in West Africa. But I think it
doesn’t get as much credit as it would in Canada or Australia because of its
location. So, investors over the years have had bad experiences in Africa and
certain countries. It just makes sense, like in Gold, if that asset is sitting
in Canada, it’s going to have a higher multiple than if it’s sitting in
somewhere in Africa generally.
Matthew Gordon: So, that’s in West Africa, Sama Resources?
Anthony Milewski: Yes. I think Robert Friedland invested
a bunch of money in it. His technology is on it. It’s an interesting story
because it’s potentially huge, right? It’s just one example of a name where if
that same asset was sitting in a different jurisdiction, it would have probably
materially higher market cap.
Matthew Gordon: Absolutely. Talking
of things that affect, different jurisdictional plays. We had a contributor
send in a piece about what’s happening in West Africa at the moment and I wish
more companies would respond to this, to these sorts of articles where there’s
a bunch of terrorist activity happening in places like Burkina Faso, Southern
Mali and then Liberia and so forth. And the companies are choosing to ignore
these things. And we’ve had a few phone calls for allowing someone to publish
on our sites talking about these negative things. But I think it’s a great
moment for the companies to come on and talk to us and say, well, actually,
it’s fine. This is going on, which is not good, but it’s business as usual for
us. It’s not going to affect our operations. But rather than bury their heads
in the sand and try and get their PR people to tell us we shouldn’t be having
these conversations. So, jurisdiction is important, I think, because we’ve
definitely been caught out. We’ve definitely lost money investing in the wrong
jurisdiction and these kind of safer plays, or more relevant plays for Nickel
hopefully they will work out for your company. You talk about Indonesia.
Anthony Milewski: PNG.
Matthew Gordon: Papua New Guinea? Apologies.
How’s it doing business there? That’s something you must know a lot about by
Anthony Milewski: We’re very fortunate in that because MCC,
which is a very large company, is operating the mine. So, I think we’re
fortunate just because we don’t have to deal with a lot of the day to day. We don’t
deal with any of the day to day. In fact, we’re not the operators. So, it’s a
joint venture interest holder. And because they’re such a big company, I think
that, they’re able to navigate but it’s not without its headaches. I think
that’s true of anywhere though. You can experience that in the US and Canada as
Matthew Gordon: So, it comes back to
your investment in royalty. It’s investing in mining without the mining risk. So, your job is a lot easier, is it?
Anthony Milewski: Well, it’s definitely easier than
building a mine. I can tell you that. That would be tough.
Matthew Gordon: Right. You talk about project types. You kind of get into a lot of detail about this. What do you mean by project type?
Anthony Milewski: I mean, if some geologist comes on
here, they can criticize and say, well, there’s really 20-types, but basically
there are two-types, Nickel sulphide and laterite. Those are the two primary ore
bodies that we talk about. The laterite ore bodies have the HPAL process, which
is very hard to get right and certainly has a history of massive cost overruns.
Sulphide has always been preferred until the HPAL technology came along. But
what you’re facing today is that no Nickel sulphide ore bodies tend to be lower
grade. And so it just means you have to process more ore and the Capex, I can’t
think of a project with under $1Bn Capex. I’m sure there’s some small projects
somewhere, but by and large, ones you’re talking about $1Bn to $5Bn and the market’s
just not ready to fund that. There’s just no actual money to fund a project
like that, which is kind of what makes Nickel interesting because there are no
projects out there. Dumont being one of the fully permitted ones for instance.
Matthew Gordon: It’s got the scale.
Anthony Milewski: It’s probably $1.5-$2M and no one’s
sticking their hand up. And if you stick your hand up right now, today, it’s
probably, 4-5 years from commercial production.
Matthew Gordon: 3-years if you’re
listening to them.
Anthony Milewski: Whatever. In practice, right?
Matthew Gordon: It’s a long time,
it’s a lot of money. I get it. Those are very difficult conversations with the
price as it is today, most certainly. What do you think the price needs to get
back up to before or how long does that need to sustain for before you get
funders or consortium funders are thinking I have $500M, now’s the time to move?
Anthony Milewski: So, my experience right now is that
it’s really Chinese money. I mean, even when that move starts to happen, what I
see is interest coming out of China and that’s bad. I think that shows a
commitment to electric vehicles and a realization about what’s happening with
EV adoption. So even as we move past Indonesia, which is kind of where a lot of
that investment that you referred to earlier is going, I actually think inside
of Africa and elsewhere you’re going to see Chinese investment is lost. So,
it’s not going to be just isolated into Indonesia. It’s going to be kind of
Matthew Gordon: You’re up for building these large giga factories for this E.V. revolution. They want to be in control of as many of the moving process possible. And you’ve got a lot of the European automotive manufacturers funding these bills. And we look at their budgets, their forecast budgets and they’re in the tens of billions of dollars. But you’re saying that at a basic level, the Chinese, the ones that are going to be funding these mines into production in this E.V. revolution, because we hear the same story in copper, we hear the same story in lithium.
Anthony Milewski: It’s the real story. It’s a real
Matthew Gordon: I get it. It’s the
same story.” We’re going to do this, we’re going to do this”. But the money
isn’t seemingly available from the West and everyone’s looking to China like
they used to, to be able to get these things done. Do you think that Chinese
are going to take a grip on the speed at which this EV revolution is allowed to
move and will it be to their drumbeat?
Anthony Milewski: Well, certainly I think what they’ve
done is they’ve set environmental policy, which is actually pretty spectacular,
like they’re leading the world in environmental policy as it pertains to
adoption of electric vehicle. And if you think about the automobile industry,
China really failed at creating an automobile industry in China. They might
create parts, they might create certain brands. But really, the US, Korea, Japan,
Europe, Germany, they kind of held the grip. And I think they’re saying, guys,
the gig’s up and what they’re doing is they’re not going to sell you a battery.
They’re going to sell you a car. I actually think if we fast forward 10-years,
let’s say, and you look out in London, you’re going to be buying a Chinese car.
Now, it might not be called the Chinese car. It still might be called Ford.
Matthew Gordon: Well, that’s my point. That’s where I was going. I thought you were going somewhere else. But they own these brands now.
Anthony Milewski: They’re going to own these brands. And
so, they’re going to be vertically integrated. And so, you’re going to have a
loss of Detroit in the traditional sense, like the automobile industry is going
to be lost. And the reason is because if you’re a Western investor, you know,
what was the S&P last year? 30% or something crazy, right? What’s Tesla up?
I mean, the market’s on fire. All-time highs a couple of days ago, right? So,
why would invest in this tiny little sector. In fact, two days ago, last week,
you had all-time highs in every single sector of the S&P except for mining
and energy. So, if you’re an investor, you’re not going to allocate to the
sector. So, you get no money from the west because your kind of year to year, 12-month
compensation or you’re passive and you can’t choose. And then in China, you’ve
got this low cost of capital and you’re trying to build an industry. It’s kind
of inevitable that it’s happening.
Matthew Gordon: Are you not worried
about quantitative easing in the US and it’s a lot of borrowing going on to
generate this growth. We had a lot of commentary for Christmas about this, that
there will be a moment where the market just implodes.
Anthony Milewski: I’m not a Gold company where I’m
wearing my tin hat. Like I think you should interview someone in a tin foil hat.
But I do think for that maybe this is one of the most interesting moments for Gold
in a long time because you do have all these random checks. But when you’re
talking about governments, the one thing I will say is their ability to carry
the trade, to kick the can down the road is probably longer than we think. I
mean, there are these scary facts like by and large, the Russians have sold US
treasuries. The Chinese aren’t buying treasuries, they’re lending them all off.
But it’s hard to say like some doomsday scenarios happening next week. I think
that the world can’t have the reserve currency, namely, you can export
inflation. But you can’t have the reserve currency fail because you failed too.
So, we can have this conversation in 10 or 15-years where there’s maybe more
than one reserve currency but, you know, should there be a recession? Could
there be a recession after a 10-year-old Gold market? Are we going to have a
mass panic civil war? No, that’s not happening.
Matthew Gordon: Let me ask you about management. You’re a royalty company. People must approach you all the time asking for money, your money, and you have to do diligence on them. So, you get to meet a lot of management teams, specifically Nickel, if we can stay on Nickel. What are you seeing out there? Are there lots of good teams? Nickel’s an easy thing to min, get into production, get into market, or do you see only a handful of people capable of actually bringing anything to market?
Anthony Milewski: Well, it’s kind of extremes. On the
one hand, you have independence in PETA, PETA are
this great company. They don’t really need anything, they just kind of keep
ticking on. And there aren’t that many small Nickel projects left that are
potentially fundable. Dumont would be an example, but it stuck with Waterton.
And I think R&C may have the operatorship. But the reality is, they don’t
have much control. So, the question for Waterton is, are they going to do
anything this cycle or maybe it’s so irrelevant to their portfolio that they’re
focused on Gold. I don’t know the answer to that but it’s a great asset that
could be moved forward.
Matthew Gordon: Talk to me about the
management team. I want to know, what are you looking for when you talk to
these guys? Is it all about the asset? Given that you said a second ago, we sit
back, the management teams run these things. So, what are you looking for?
Anthony Milewski: I actually find that there’s this
weird Darwinian thing, which is generally good management teams end up with
good assets or it ends up that way eventually, right? I can’t tell you what a
world class asset is being run by buffoons. I’m sure there’s examples.
Matthew Gordon: I don’t want you to
name names, but I’m saying what would do they need to know, what gives you comfort?
Anthony Milewski: A team, in particular for Nickel,
that understands the technology around that deposit. Especially, is it a
sulphide? What’s that going to look like? What’s the process? What’s the flow
sheet going to look like? In the face of not only all the HPAL things we talked
about, but in the face now of Namaskar, where they raise a billion dollars.
They got the flow sheet wrong. Or at least the Capex were unrelated to
refinery. It’s a mess. So, I think if you’re going to do a royalty, you have to
believe it can be built. And so that means you got to have sufficient technical
knowledge in-house to believe that that group can build it. But I would tell
you, I don’t really think at least off the top of my head, I can’t think of a
project out there that’s actually going to get built by a junior company. It’s
a $1.5Bn Capex. What happens is they’re going to bring it up to feasibility, they’re
going to get it ready with partners and then in one form or another, they’re
going to hand over that operatorship to someone who is actually able to build
Matthew Gordon: What are the red flags? Are you saying right OK if a junior company is saying “I’m going to get this thing into production” you’re going to call bullsh*t on that?
Anthony Milewski: You can just look at the product and know.
Matthew Gordon: Well, we don’t know.
You’re the expert here.
Anthony Milewski: Some of the microcap, massive
disseminated laterite low grade ore body as you look at that. Now, that doesn’t
mean you shouldn’t have asked us to be clear if it has a $6M market cap today,
and uranium is a great example of this, and Nickel triples. Well, that’s $6M market
cap company trades as an option. So, it may well trade at $150M market cap through
the cycle. So, that doesn’t mean you shouldn’t own it but that’s different than
as a royalty company thinking about whether or not you want to give them money
Matthew Gordon: Right. Good point by
that. So, I want to talk about, and for people watching this and for me, how do
I identify having spoken to the management team, what should I be asking a
management team to give me the clues to allow me to make an investor decision?
Anthony Milewski: So, I would ask myself, firstly, what is my risk tolerance? Am I delving into the speculative? Because if you’re going really speculative, you know Mark Selby for instance, so Mark, I understand in the next two weeks or sometime very soon, Mark is going to have a publicly traded company with Nickel Asset. And that’s an exploration play. Now, look, if he makes that discovery, that’s going to go up. Now, if he doesn’t, by the way, it’s going to crash. So that’s one type of investment. Buying independence is really just going to be a function of cash flow and earnings relative to the price of Nickel. Now, Nickel has a whole bunch of projects in between like, I can’t think, there’s a handful of them in Australia, just blanked a couple of their names and they’re going to fit somewhere in between on the spectrum. And what you have to ask yourself is when I look at that ore body type, do I think that there is a shot of that getting built in the cycle?
Matthew Gordon: Another scenario for you here, okay? You’re going to say buy Nickel all day long. Lots of different options in Nickel, as you should. But if I’m a high risk tolerant, I’ve got some throw away money here, don’t mind if I lose it. What is the type, don’t need to name names, what are the types of Nickel companies I should be looking at? And I’m going to ask you the same in a second if you’ve got a low risk tolerance.
Anthony Milewski: So, if you’re high risk, I would look
at really large ore bodies that will trade as options and they will happen.
Matthew Gordon: At some point they
will happen. Buy them, put them in your drawer. Done.
Anthony Milewski: However, you should think about it in
terms of an option value like theta in other words time decay. You should actually
think about that as an option. So, you buy $50,000 today, by the way, if the
time horizon is five years, it’s probably going to zero because they’re going
to raise money three times. By the way, just like an option, if it happens in
the next 24 months, you might do X times your money. So, I’d think about that
as an option.
Matthew Gordon: That’s nice. I like
Anthony Milewski: For better or worse, like death or
glory, I like to have a little bit of money invested in exploration play like
when Mark’s thing comes out just for fun, but that’s very binary. You know, you
can only twin a director’s hole so many times.
Matthew Gordon: Yeah, we’re not betting the house. But it’s worth putting something on that.
Anthony Milewski: Exactly. Those are the high-risk
ones. But personally, my biggest Nickel positions, besides the company I’m the
chairman of, are these large option plays where I look at them as time decay theta
because I think it’s going to happen sooner than that, then that thing gets
diluted down because of capital raises. So, that’s what I would look at. It’s
very risky and I think you leg in unless the thing has no market cap as it is.
Matthew Gordon: We were talking about
a Gold company in the same position before we kicked off the interview. Yeah, I
understand. So, that’s your low risk scenario, or indeed invest in a company
like yours which out dishes out dividends.
Anthony Milewski: So, the way that Conic works is we
have a loan sitting at the joint venture level that’s getting paid off with
cash flow every month. Ramu
has been producing for seven years. The first tranche of that is paid off in
kind of 14-18-months, depending on Nickel cobalt price. And then once that’s
paid down, we’ll start with free cash flow.
Matthew Gordon: Dividends galore.
Anthony Milewski: Dividends galore. There will be no dividends
between now and free cash flow I can promise you. That’s not happening.
Matthew Gordon: You’ve got to ask. This
is one of which I love, not a lot of retail guys discuss or really understand,
and I get a lot of questions through on DM and e-mail and through social media,
which is around capital structure. So, that’s kind of my background. I kind of
enjoy the structuring of deals. It’s literally the first thing we look at
before we walk into an investment diligence process, which is how has this
company structured itself from the beginning and what has happened to it, its
structure, to this point and why? Again, it’s one of the headings that you put
on here because I know that you like this.
Anthony Milewski: A personal pet peeve I have, no debt
before production unless it’s part of that financing package. So, like
sometimes I see these junior companies that are 5 or 10 years away from
production with a convertible note. This makes no sense to me. It’s one thing
if this is part of the package of money, it puts you into production, that
Matthew Gordon: We talk about near-term
revenue, for us. So, if it’s 12-months we could…
Anthony Milewski: If you have a feasibility done and you’re
going into production, that should be part of your capital structure along
probably with the stream of royalty like that’s kind of the new capital
structure. But if this junior mining company is pre-fee, whatever the case is but
years away and it has that a convertible note, you’re going to get blown out. Show
me a time you don’t get blown out. I’m sure there’s one. So, I think that’s I
think that’s important. I also think one of the desperate moves that a lot of
juniors make just in general is they give away the offtake way too early and
they give it years away. And the problem is, if you give the off take away five-years
before production, then actually really materially hinders and a lot of cases
your ability to raise financing for production because the person who might
fund you no longer can have the offtake. So, I think that’s why should leave
the offtake unencumbered as long as you can.
Matthew Gordon: Great point.
Anthony Milewski: And if you’re years away and it’s encumbered
to me, that’s a big red flag.
Matthew Gordon: But a lot of juniors and we spoke to quite a few recently talking about announcements of offtakes imminent and we don’t say anything but we’re looking at them and going, what terms could you possibly be empowered enough to negotiate now? Compared to down the line?
Anthony Milewski: It just reflects the capital market.
There’s no equity. There’s very little equity there.
Matthew Gordon: But they’re looking
for a catalyst. They’re looking for a moment to say something to the market
that we’ve done this off take agreement and the terms of which are usually very
vague and if they are in a bit more detail, then they are fairly one sided. So
again, I’m like you. I’m not I’m not a fan of it. And I’m even less profound
when the CEO touts that as that being a moment for significant change in the
Anthony Milewski: Certainly, like for graphite, it’s a
very unique market. But for copper and Nickel, I think it’s a bit odd and it
doesn’t make any sense because especially for a specialty market, like a mixed
hydroxide or even like a lithium, it’s such a specific product you’re making
that some offtake contract is going to basically be referred to a specialized
product, which you may or may not be able to make years down the road. So, I
think it’s a false catalyst and it’s probably driven by the fact that in order
to get financing, certain types of debt, you ultimately will need for bulk
commodities in particular, but for a lot of places, you need to take or pay
contract that people can see that you can sell the material. I think what’s
happened is management teams have seen that be successful. They started to draw
that out was way too early. So, I think it’s a nonsense.
Gordon: What are your other pet peeves? I mean, for me, when people start
talking about MIU’s or non-binding contracts or those sorts of things, which are
meant to signify moments.
Milewski: I don’t want to criticize. Part of the problem is,
put yourself in the shoes of the management team, you’re doing the right thing,
you’re generally playing by the rules. And literally no one cares. Out of all
of your listener base, one-person cares. And so, you’re struggling to generate
interest because you have a view on name a commodity. I think there’s this
pressure that gets put on the management team to manufacture a story.
Matthew Gordon: That’s the moment that worries me most, when we’re having discussions, when they are manufacturing…
mining right now. Everybody except for Gold is having a moment. It’s
manufacturing a story.
Gordon: But it puts retail investors, who perhaps haven’t seen cycles, or
haven’t seen these moments where these stories played out before, puts their
money at risk. That’s the truth, right?
Milewski: You could trick someone into buying in.
Gordon: So, I think that’s unacceptable. Truly unacceptable. And when we see
that, we will call it out because it’s tantamount to lying effectively, or
theft, as far as I’m concerned. It’s a bit extreme, but that’s our view. And
we’ve seen too many of these juniors put in difficult positions and make
difficult decisions, make the wrong decisions with other people’s money whilst
they’re being paid a salary.
they have no meaning actually, they’re not binding another party. It’s just a
nonsense. Your point is that while sometimes it gets people to buy the stock, they
shouldn’t otherwise do it.
Matthew Gordon: Yeah. Share register.
That’s another point you make here. This is kind of interesting, because
there’s a train of investment thought, which is if you just basic invest in anything
Eric Sprott invests in.
Anthony Milewski: Well, that’s kind of the Canadian
model right now.
Matthew Gordon: And it kind of works
right now. You get in a bit late, you get out a bit late, but you’ve made a bit
of money probably because that name, there’s a few others obviously, there are
more options in the market than Eric, those names going in signify to retail
that this is going to work because Eric’s money has gone in. Now, it’s also
worth noting that for Eric some of this money is option money, people like
Eric, they’ve got hundreds of millions available to them and this is option
money. So, it works out great, but doesn’t matter so much. He spreads the love.
Do you think that’s actually a good investment strategy? Would you recommend?
Anthony Milewski: Well, it certainly would have been successful over the last year, I think with Gold and the other stuff, I don’t think you should ever rely on someone else, you should always decide based on your situation and your views. So just blindly investing where Eric invests is probably not the best strategy because eventually it won’t work out, I don’t think. I’m just not criticizing him, but just saying you should pick your own names. So historically, you’d say is this a big company, is this a big fund? Is that being funded? But what I’ve noticed is actually the stickiest money, interestingly, is retail money. Most of the money now in mining is pretty short term. I mean, setting aside its own private equity money, which is expensive. It’s pretty short term. And so historically, whereas you’d always BlackRock in, as you know, whoever in, I’m not sure that’s as much cachet to becoming an institutional stock. I don’t know that carries as much weight as it once did.
Matthew Gordon: It has different
effects for different companies, clearly.
Anthony Milewski: The meaning is, at one point, the
institutional investor brought the big equity in and so you went from $100M to $1Bn
and you could raise the money to build that big mine. And now that’s just not
Matthew Gordon: I’ve seen too many
variances. I’ve seen companies which have got big retail and it’s helped with
liquidity and it’s all great. And then I’ve seen other companies where the
retailer goes, pardon phrase, batsh*t crazy and it’s stalling the company
again, because there’s all sorts of rumours, unfounded or misinformation or whatever,
so different horses for different courses.
Anthony Milewski: People are pretty worked up.
Matthew Gordon: Yes, they are, because
it’s their money. And I kind of like the fact that people get impassioned
because this is their money. This is their hard-earned money that they’ve
earned or been given or inherited or made in some way, so well done them. And
part of this is entertainment value. I say to the guys, it’s kind of WWE,
except without the fancy dresses here. It’s entertainment. There’s money to be
made. And I like that. And we have a lot of very passionate followers and
subscribers, so I like that. But I’m coming back to the share register
component here. So, you’re saying that the mix for you, you like the retail
being involved more than the institutional or how does it work for Conic?
Anthony Milewski: Do you know what else I actually like? I actually like does the CEO or does management actually own any of the stock? I guess it’s like the classic Canadian thing, if someone jams a deal together, whoever that person is sitting in the shadows, the thing goes, they sell their stock and have a good life. So, I think it’s nice to see that the management has stock in a company.
Matthew Gordon: Always. Got to.
Anthony Milewski: It’s not realistic in these big Capex
projects for them to own 10% of it or something. But at least if they have
enough to make it meaningful for them. I like to look at what are their options
looking like. Does it matter if it succeeds or fails? If it doesn’t matter, then
why should it matter to you?
Matthew Gordon: This is a whole other
discussion here because we get people coming in with lots of views, where you’ve
got to pay for the best or they’ve got to pay themselves to make their family
comfortable, allow them to concentrate on work or that you’ve got to buy
success by paying these guys the best to incentivize them to work harder. Hundreds
of scenarios. I mean, personally, we don’t like to see a big salary paid. We
like know options and success fees and all of those things that you would hope
so if it works out, shareholders make money. They make money. It’s all great. One
of our guys is doing an article at the moment “Top 10 best excuses as to why
they need to be paid so much”. And we’ve heard them all from divorces to
actually things didn’t quite work out at the last company, I’m still paying
down what I owe there etc. There’s lots of reasons. But don’t make it the
shareholders problem is my view.
Anthony Milewski: It should be set up such that they’re
incentivized to make it work. Because if they’re not, if it’s just a wicket,
then what do they care if it doesn’t work? Let’s go find a new wicket. So, I
think however that is set up and there’s different ways DSU’s, RSU’s, options that
can be said up a lot of ways, but you should be able just to look at it and ask
them what happens if this sells for 100% premium? Are you making any money? Or
whatever the numbers are in that particular situation.
Matthew Gordon: Yeah. Okay. And I
think that’s probably one close to your heart which people should read the
paperwork. I always say to people, why get angry now? You should have read the
paperwork before you put your money down. You know what you’re getting into. If
you don’t know what you’re getting into. Don’t invest. It’s really simple. Don’t
put yourself in a position where you might get pissed.
Anthony Milewski: On that point, I think a lot of times, especially in Canada, lets speak about Canada, that’s a market I know really well. There’s a huge amount of information available for retail shareholders. What I would say is if the amount of money that you’re putting into this name is going to impact your mental health, it’s going to cause you stress if it goes to zero. So, it’s one thing if you’re this rich guy, you buy $10,000 of it and like, who cares? If that’s you, then don’t worry about it. Whatever that number is, when you get to that number, go on Sedi, download the AIF, download those documents or just read it, because I think what you find is most companies are actually fully disclosed. It’s just the people that read it. So, I would say if the amount of money that you’ve put into stock matters to you, that could be $1 could be $1M, if it matters to you, take the time to go on. It’s all free. All disclosures free. Download it and read about the management profiles because you know, what you’ll find is whatever is on the website is the best foot forward. But when you get into the disclosure documents, you might see there was a cease trade order in their last company, or you might see nothing. But the point is, if it matters enough to you that you’re going to be stressed if it goes wrong, then you should definitely read the paperwork.
Matthew Gordon: Now, we found ourselves in a scenario recently where we interviewed a CEO who got awfully upset that we dared to ask him about his remuneration package and how that was structured.
Anthony Milewski: Is this the guy that’s going to sue
Matthew Gordon: He’s
going to sue my ass.
Anthony Milewski: For reading the disclosure?
Matthew Gordon: That’s not happening.
We ask them some tough questions, but it’s all public information and there’s
nothing wrong with that. And I think the last time we spoke, we asked you some
pretty tough questions about your remuneration after Cobalt 27. You answered
them. It was fine. But that backs up the point. It’s all publicly available. So
have a look. If it’s going to irritate you, don’t invest. There’s lots of
companies that will probably meet your criteria but do the homework, I guess
that’s what I’m saying. OK, we’ve got to go. Thanks for coming to London
specially to see us and to hand in the first draft, I appreciate that. I
literally can’t wait for you to finish it on the plane on the way home. And
we’ll look forward to publishing it.
Anthony Milewski: Thank you very much for having me as always.
Company page: https://www.conicmetals.com/
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