Q&A: Metals & Mining IBD Analyst

Hi WSO, thought I'd make a post on this as I have a bit of downtime.

I remember recruiting and noticed there wasn't a lot of information around the Metals & Mining groups, specifically around topics like interviewing, job-specific skills/roles, and further opportunities. Happy to answer any questions and provide a bit of color on my experience and how I view the pros and cons of the group - would say that it's sufficiently different compared to the more popular coverage groups

(Conscious that it isn't the number one choice for a lot of people so may not get too many Qs)

Background: Second-year analyst in BB Metals & Mining coverage, deal exp. has been focused on base metals and rare earths

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Comments (30)

  • Analyst 1 in IB - Cov
Jul 17, 2021 - 4:35am

Non-US, in a country with a large natural resources focus (Canada / Australia), so admittedly the recruiting landscape is a bit different and something I should have clarified in the main post

That being said, I have seniors / friends in M&M teams that have moved from my office to Chicago / NYC so can try to get a bit of their insight too if needed

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  • Analyst 1 in IB - Cov
Jul 17, 2021 - 5:53am

Yeah very valid question and something I definitely thought a lot about before starting full-time, would recommend anyone going into a coverage group to have a  view on the sector to gauge their level of comfort with it

I think there are two ways I personally break down the industry outlook; (1) from the advisory/financier aspect, and (2) from the mining industry more broadly

(1) Being on the financial side (investment banking / private equity / other financial roles), you're exposed to the commodity cycle as commodity prices determine, for the most part, the level of capital markets activities that take place (e.g. the economics of mining a gold deposit from the perspective of a junior exploration miner make more sense when commodity prices are strong + have a positive outlook, hence they are more likely to raise capital during these conditions)

We chat about commodity cycles and other macro events all the time at work, and everyone has a different opinion on where exactly we're going to go in the short/medium term. However, from an investment banking perspective, I'd say there is always be work to be won. Mainly because, at the end of the day, bankers are there to advise the business, and can pivot to adopt a "strategic advisory" focus. Whether that involves more bespoke advisory, consolidation / RX work, defensive capital raisings etc, work will get done because these companies do not want to face bankruptcy or other consequence (e.g. an inability to fund the development of a new site because the economics are less attractive to investors at current prices). I could be wrong as I haven't actually worked through a proper downturn, but I couldn't see myself being too far off.

Slight tangent, but I never really grasped the full gravity of a mining operation until I went on a site tour by one of our close clients. The scale of these assets, paired with the community's reliance in the form of employment / other social benefits is immense.

(2) For metals & mining more broadly, obviously there are going to be winners and losers in the future. Would say that the key factor that determines these is ESG. Before I get responses being like "tell me something I don't know" / "no one important cares about ESG", there's a bit to break down. Right now, there's a huge uptake in ESG by the broader population, but it's a bit more nuanced in mining. This ESG trend manifests itself in a lot of ways. Some that come to mind which I'll touch on (and I'm sure I'm forgetting some) are renewables, EVs and environmental/land appreciation.

The prevailing take on renewables is that it will completely decimate coal once we are able to fix the energy storage issue. Again, a few things to unpack with that. I agree that thermal coal mining will become/is already ridiculously uneconomical and unpopular, and will likely only be needed as part peakers until we fix the storage problem. In saying that, we don't have a good substitute for metallurgical/coking coal yet. Met coal is used in the steel making process, with c.70% of steel being produced in blast furnaces that rely on met coal. There's some commentary on how green hydrogen could replace met coal in the steel making process, but I think we're still quite far from being able to adopt that at a large scale. So you could say that met coal won't be as negatively impacted - but the issue is that all types of coal have been sledged. Investors we talk to have explicitly told us they will not invest in met coal simply because it's too hard to explain the difference to their capital providers. Take what you will from that, but the crux of it is that coal isn't going to be too popular as more and more renewables get on the grid. On the other hand, a number of metals are used in the actual production of storage/generation assets (graphite/nickel/cobalt etc), which are undoubtedly gaining a lot of popularity. 

EV's are a subset of the points on renewables. Copper, graphite, nickel, cobalt, lithium, manganese, and silver are all able to take part in the upside from EVs, as they are all involved in some aspect. I won't dig too deep into these, as my views aren't too developed on all battery metals as opposed to the sector more broadly. There are still some nuances to dig into from each type. With copper, there's a distinguishment that needs to be made between miners that sell copper concentrate and copper cathode. Cathode is generally "pure" / ~99% copper metal in the cathode, while concentrate tends to be around ~30% copper metal in concentrate (impacting things like Capex requirements, Opex for differing mining methods, TC/RC's etc). Similarly with Nickel, there are laterites and sulphates. Laterite deposits are in abundance globally and have easier / cheaper mining processes, but tend to have higher Capex needed for processing and are generally only economical at higher Nickel prices. Compare that to sulphates of higher quality but lower abundance. So even within the "winners" from EVs, there are specific types of metals that will get ahead compared to others.

Finally, on the environment/land, this is more focused on the individual mining operation type as opposed to individual commodities. There's been a lot of money flowing into mining technology-focused automation, disaster prevention, and generally more responsible mining. I think (maybe optimistically) mining companies recognise that the environment needs to be given significant consideration. It's not as simple as earmarking money towards a remediation fund that gets put into use after the life of mine, but more about incorporating more sustainable mining practices into day-to-day operations. I don't think mining is "fully sustainable" or can get there without significant R&D/investment, so at the moment I think the guys who really consider their impact on the environment are those that will come ahead relative to the rest of the pack.

The point on land is a huge one - BHP and Rio have been lambasted (and rightfully so) for their environmental impact; BHP with Samarco in 2015 and Rio with the Juukan Gorge in 2020. The issue is that these are only the headline disasters, there are a lot more that go under the radar due to lack of media coverage or public interest, but I think that this has been changing over time. Perhaps the winners here could be those that really put a focus on considering the widespread effects of how they operate.

Sorry, I feel like I went way too in-depth with some really niche topics! You could make the argument that I'm a bit pessimistic about mining or question why I work in this group. I think personally, I'm grateful because the companies I work alongside are more on the base metals / rare earths side, along with some of those mining technology companies. There's a lot of really cool developments out there at the moment that tick all the right boxes across economics and ESG, and I think those are the horses to back in the long term

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Jul 17, 2021 - 4:48am

Are you at a BB or a Big 5?

what would you say are the most important things to pick up and learn for a new M&M corp banker starting the gig? 
What's the best thing about M&M?

  • Analyst 1 in IB - Cov
Jul 17, 2021 - 6:13am

At a BB

I'd say with M&M, along with other coverage groups that are a bit more "technical" in nature, it's really great to come into the role having a bit of an understanding of the lingo. When I interned, I'll admit I couldn't tell you the difference between a resource and a reserve. You'll definitely find that understanding these terms helps so much, whether its in company filings, credit memos, investor presentations, or even technical reports (I still can't fully understand these and do not think my job needs me to, but its being able to understand the key takeaways and a slightly-more-than-surface-level understanding of how the geology / mining / processing works).

I will admit, my understanding of corporate banking isn't fantastic. I know its more on the debt side, so you would likely be working with larger corporates that have multiple producing assets/financing development assets? In that instance, I'd say absolutely worth understanding the lingo, especially as it relates to the risks of a mining company. Understanding the full life-cycle of a mine is important as it helps you categorise different risks that could emerge. Just a random bunch that come to mind: Is there any risks by having offtake? Risks of selling on a fully spot basis? Risks from throughput declining for a year? Risk of only having one power provider/transportation plan?

Best thing about M&M I slightly touched on in my comment about industry outlook; I'd say it's great that I'm able to work on some really interesting commodities and see the value down the line. Another really great point is the modeling experience. People say that modelling in M&M is really specialised / can pigeonhole you. I'll admit to this to some extent, but the best models I have seen have been mining/infrastructure models. The guys on my team are modelling nerds and can put together really complete operating models very quickly. Once you're able to take in a mine plan and model out the entire financials over a 10/15/20+ year life, other models become really trivial to construct.

  • Analyst 1 in IB - Cov
Jul 17, 2021 - 6:55am

Again really sorry but not too familiar with S&T, especially on commodities. I have a bit of an understanding of what the physical traders do (like Trafigura/Glencore), but less so on the financial side. I'd assume without a doubt you would have views on individual commodities and what the demand/supply looks like?

I can explain a bit on my job's day to day, so you could see what overlaps. As a tl;dr, the work involves putting together CIMs and models that have a LOT of granularity on mining operations, and the remainder of the work is very similar to regular IBD.

In more detail:

  • Putting together CIMs: The central tenet of banking that will never change. Depends entirely on the situation/deal, but things this covers are a detailed overview of a business on its operations, financials, and capital structure (if public). There are industry-based slides as well that cover any short or long term events playing out. Cover mining based comps i.e. EV/Reserve, EV/Resource, P/NAV. If a merger could have proforma metrics like combined R&R, Production, Financials, Geography split
  • Modelling companies: Depends again on the situation. Could be a merger/acq, operating model summary for debt/equity raising purposes, running scenarios like what happens if the company adjusted some of their operations. LBOs aren't as much of a thing here because debt in general isn't too common for miners (really just on the large scale companies that have certainty of operations)
  • Transaction related activities: If we're on a sell side, could be putting together a list of parties for outreach. On buy-side, could be evaluating the data room and conducting DD alongside the bidder. DD can range from in-depth financial modelling based on data and assumptions provided, to more specific things like reading through their technical reports to assess if there is validity in their investment highlights. It's so easy to obfuscate information - a company can say that they have "solid operations" and "scope to extend mine life of X asset", but try minimise the fact that if they maintain production at their existing mine plan its going to quickly erode the deposit and drilling nearby doesn't inspire confidence. Even on sell side, important to think of diligence qs you may receive ahead of starting the process.
  • Intern in IB-M&A
Jul 17, 2021 - 6:00am

Since you're not based in the US, how did your approach towards recruiting for IB differ from the traditional means displayed on WSO. Did you do freshman/soph boutique IB -> junior SA -> FT? did you network a lot with alumni etc. 

What are you planning to do after your 2 years, PE, stay on as an Associate, Industry? Where do you see your career in like 20 years

what did you major in college? 

  • Analyst 1 in IB - Cov
Jul 17, 2021 - 7:16am

Not dissimilar to how you would recruit from the US; I interned every summer - freshman I did an economics research/policy related internship, sophomore was in MM PE, junior was in BB IBD then convert to FT. I did network but wouldn't say it was anywhere near "enough", I think I got really lucky on that. Networking with bankers always felt a bit weird for me so I'd end up just asking them a lot of questions about their job and eventually trying to find something non-job related to talk about because I found it so boring otherwise

Hard to say what I want to keep doing - I'm really finding my rhythm in my role right now and have the benefit of working alongside some really smart and interesting people. Culture is great as well, so hard to say if I want to make a move. A2A isn't uncommon, so I could certainly go down that path. The main buy-side opportunities open to me are in mining PE, but I'm not too keen on moving to an investing role in general (regardless of the sector). 

20 years is a very hard question, although have definitely thought about it. I personally break down my goals into time frames; 2/5/10/20+ years. In the long term (20+ years), I'd hope that I've had a steady progression of upwards movement. Because my immediate career moves aren't decided, hard to say what I want to be doing in 20 years. Could be taking on a really specialized advisory role i.e. strategic funding advisory (royalties/offtake type advisory) or working directly in these companies - they are really interesting to me personally.

More broadly though, I'd say a big focus for me is to help people. Two ways I mean this; naturally if I'm in a role in a related field 20 years later, I'd be responsible for managing people in some capacity. A big thing for me is to make sure that I'm always there to help them develop, and going the extra mile to do so. The other way I mean this is within my community. I've had an incredibly fortunate upbringing relative to a lot of other people, and want to pay it forward in a sense. Currently involved with a couple of NFPs in different capacities, hoping it's something I can continue placing a focus on. Some causes are very close to heart and I don't want to be in a position down the line where I regret not doing more for them - work, at the end of the day, isn't everything!

Had a read over this answer before posting and realize you definitely meant what my goals are in relation to a career in mining, so apologies for the introspective tangent. I do think I'll be staying in mining / a related field my whole career, as mentioned in a few other replies there's a lot that interests me about the space

Jul 17, 2021 - 8:16pm

Hi thanks for the helpful content!

I'm based in Australia/Canada and was interested in natural resources and investing with few questions below:

1) What drives PE returns in metals and mining or broader resources investments?

2) As an IBD analyst covering resources - are there optionality to move into corporate private equity / special sits or HFs? 

3) What are some resources you recommend to get smart on natural resources IBD?

4) Lot of Aus/Canada HFs are overweight in natural resources and believe in "commodities supercycle" what's your view on this?

5) How is analysing "projects" opposed to corporates different and what are the different skillsets you learn?

Thanks in advance! I've personally interned in BB IBD Natural Resources & Infra coverage and found it quite quantitative which I enjoyed. Few people from my group has transitioned to non resources/infra investing roles (MF/UMM) but wanted to get your thoughts on the whole "pigeonhole" thing which to me seems to be exaggerated in WSO.

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  • Analyst 1 in IB - Cov
Jul 17, 2021 - 10:44pm

Yeah I certainly did, and recently the desire to do so came back after reading The World For Sale

I think there are really stark differences in the two jobs though. Phys trading is very ops heavy; a very crude summary of it is to source, transport, store, blend, and deliver commodities. I pulled that from Trafi's commodities guide (and would 10000% recommend anyone interested in a career in commodities to read this). Compare that to IBD (super well documented), and you can see there are a lot of differences.

A big thing that keeps me in IBD is the risk aversion. I'm well aware of the incredible monetary reward that's at the end of a successful trading career, and wish the absolute best for all my friends working in those fields. That being said, I'm super content at the trajectory I'm currently at, and can see myself carving out a niche within the financing side

  • Intern in IB-M&A
Jul 17, 2021 - 11:21am

What do you think about the future of Rare Earths? Will we see the emergence of many junior miners in different countries like for gold, or will production remain concentrated?

  • Analyst 1 in IB - Cov
Jul 18, 2021 - 6:53am

Think rare earths will be a bit more on the concentrated side, with the likes of big Chinese players having a dominant position based on their current land mineralization

Gold, relative to other commodities, is pretty easy to prospect for as a junior explorer. You have the benefit of the resource being present in Tier 1 mining jurisdictions (Canada, Australia, some US). This is beneficial not just from a stability aspect, but also because it costs very little for a junior to raise $1-2MM and buy tenements in areas close to good deposits. Then there's the added benefit of Gold being more economical to mine - look at the amount of Gold consolidation plays compared to say Copper, paints a bit of a picture of the landscape

Rare earths, keeping with the name, are found in more scarce pockets of land hence the process of setting up a producing asset is very different (both from a mining/processing perspective and the ability to convince investors you have the capability to set it up in the first place - the demand is clearly there)

  • Analyst 1 in IB - Cov
Jul 18, 2021 - 6:58am

I won't go too into detail because I think a lot of online material covers the outlook really well from a battery / EV adoption perspective

I'd say as a summary I'm very cautiously optimistic (emphasis on the very) - prices have absolutely boomed recently and everyone and their dog is looking to raise capital to find the next big deposit. I think the use case is there for it, but hard to say if the price is an accurate reflection of the fundamental value it provides

Think what's more interesting could be the interplay between lithium and nuclear - while it seems like nuclear has been put on the backburner, if we could see better messaging and public uptake on nuclear you could definitely see an added boost in demand (specifically on Li6 and Li7)

Bit of a simple take I admit but I don't have any groundbreaking views on it haha

  • Prospect in HF - Other
Jul 17, 2021 - 9:14pm

I've got some questions on the more "funding" side, since you did mention you could see yourself doing that in the future somewhere in the thread:

1. What is the debt scene like for mining companies? Considering there tends to be huge volatility in the sector, do mining companies still have a typical capital structure (senior secured, mezz, bonds)? Do lenders provide less leverage (i.e. 2x EBITDA rather than 4x EBITDA for senior secured)? Is preferred equity used a bit more, due to its debt-like characteristics while not being as onerous with interest payment obligations?

2. I've heard a lot about the merits of funding through royalties, but what are some of the main issues (both positive and negative) surrounding royalty funding in your experience?

3. I know this isn't necessarily your specialty, but any thoughts on the steel market?

Thanks for this Q&A!

Jul 18, 2021 - 6:07am

Commodities will always be needed. Even in the US it wasn't long ago shale was a big theme. You might think thermal coal or oil is going out of fashion (certainly not fast enough for ESG likers), but what about lithium or rare earths? Everything you do in this world requires some form of commodity input. We don't quite make energy out of thin air (O2), although hydrogen is getting close (eg Nikola).

  • Prospect in IB - Cov
Jul 19, 2021 - 2:25pm

Really interesting. Thanks so much for doing it. After starting a career in M&M do you think after a couple yrs it's possible to move to a completely different area in the future eg tech. Or would you have work a couple yrs then go get an MBA to move to a different vertical? 

Jul 19, 2021 - 4:19pm

I like rare earth miners, long in my PA for a variety of reasons (general inflation trade, reliance of these materials from electronics and many things ESG related, beaten down commodity/cyclical producers kind of a long-term OTM call option on the underlying commodity, etc). 

What's your opinion on rare earth miners?  Best jurisdictions?  Regions to avoid?  Red flags to look out for?  I'm a tourist in the sector now but trying to ramp up.  

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Jul 23, 2021 - 3:51am

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