I DON’T want to study rocks!” My teenage son Tom looked at me like I was an ugly alien. We were discussing what he should read at university, and he was keen on economics and maths to pursue a career in finance or business.“But I think the big finance boom is over, Tom. And mining is more than rocks; there are lots of opportunities for exciting work and travel. You could start by studying geology and, if you want, do an MBA later. Think of the mines as regular businesses and the rocks as their products. It’s not that different.”
To illustrate my point, I told him about an Australian mining operation I’d been following and investing in, led by a very capable man, Peter Cook. “Cooky” is a trained geologist with an impressive record in mining. His successes include the sale of a gold mine for $250m (£156m) that he bought for $20m. His latest passion is tin, and his company Metals X is a partner in one of the world’s largest tin mines, located in Tasmania.
He says that tin is facing a “perfect storm”, though I prefer “perfect sunshine” because it sounds so good. Firstly, tin is benefiting from an increasing aversion to its competitor, lead. Lead has been blamed for the madness of Caravaggio, the death of Beethoven, and (spuriously) for the infertility and decline of the Roman Empire. In the last few years, there’s been increasing legislation against its use and tin is being used as lead’s replacement. Perhaps you’d call it “lead led” demand. Secondly, there are expected problems with supply. For example, the world’s biggest tin mine in Peru is headed for depletion by 2017. Thirdly, there’s a bunch of newly-discovered uses for tin, such as improving solar panels and tripling the life of lithium batteries. “Tin will be the Viagra for the hybrid car industry,” says Cooky. So mining is even sexy.
Now you would think that with the “China story” of industrialisation and urbanisation, the mining sector would be booming. But that party was a few years ago and now the sector has a horrid hangover. Everywhere there are unstarted and unfinished projects scrambling for funding, and company valuations are desperately down, including for Metals X. But Metals has actually done well; the tin has made it profitable and generated a cash pile. So rather than whinge about the cycle, Cooky has used the opportunity to buy cheap gold and nickel assets that could generate enormous value.
“So, Tom, mining has everything. Competing products, cycles, funding issues, strategy…you name it. It’s exciting – I would guess that more money has been made and lost in mining than in any other activity.” And what did Tom do when I passed on this invaluable insight? He did what every sensible teenager should do – listened to the advice and chose his own destiny. It won’t be rocks.
Richard Farleigh has operated as a business angel for many years, backing more early-stage companies than anyone else in the UK.