Interview with Mark Tyler, Head of resource finance at Nedbank Capital
M&A & healthy appetites in African Resource Stocks
As one of South Africa's four universal banks, active both globally and domestically when it comes to mining and oil and gas debt financing, Nedbank Capital ("Nedbank") is in a relatively unique position to comment on the health and outlook of each setting.
Participating in international mining finance since 2004 and having launched an oil and gas finance unit in late January this year—soon to be followed up with an oil and gas debt arranging business—its role in natural resources project finance looks likely to grow.
"The European banks have been taking big tickets in their deals, [but] they've scaled back a bit. It's making opportunities for smaller players to up our participation. Paradoxically, we have a bigger appetite for this now than we had a couple of years ago," says Mark Tyler, head of resource finance.
"We're looking to take bigger participation in big deals, which allows us to get the money out of the door quite quickly."
In 2011, the bank's oil and gas efforts grew exponentially, having agreed to finance oil and gas projects in Nigeria and Angola, among a host of other actions.
And on the eve of the Cape Town-held Mining INDABA, Nedbank announced plans to potentially double oil and gas lending and offer some US$500 in mining and oil.
Nuala Gallagher (NG-GM): Following the launch of your oil and gas unit recently, and given the incoming oil and gas advisory and debt arranging business, tell me, Mark, what are the international opportunities Nedbank is looking for?
Mark Tyler (M. Tyler): I think that there are deals where they are too big for us to arrange the whole lot—particularly these US$1.5 billion projects—but we also think that there are a number of opportunities among the junior players, not necessarily in Africa, although there are some, but also some European junior players with much lower requirements. There's a good opportunity to advise and arrange with them on raising finance and possibly putting money in. Those are the kind of opportunities we're really looking at.
NG-GM: Are juniors are faced with particularly tough competition for key assets now? I wonder if the competition for top projects, driving multinationals to be more aggressive in M&A activity, has led Nedbank to perceive any trends here?
M. Tyler: There's always been a market there among the junior players and people prepared to get out there in [remote] locations to do exploration and chase discoveries, but to develop these assets themselves is not necessarily always possible. For some, they've been looking to dispose of these assets but what has recently changed is that it's been easier and quicker to do an acquisition of a company that is halfway down the line or in production. The multinationals had been looking to snap these up through acquisitions, but I think that has dried up over the last few years. When it comes to M&A, I think that the majors no longer just look at buying. They compare what they can get from investing in the exploration and doing the earlier-stage work to get it up the curve themselves, and buying a company.
I think that over the last three or four years, there's been a real swing from majors buying up smaller companies to develop grassroots projects—not only in Africa, but South America and parts of Southeast Asia previously considered no-go areas—in their search for good quality assets. They're prepared to spend those three, four, or five years developing them.
NG-GM: Where does that really leave juniors who conduct early stage exploration-as-business?
M. Tyler: I think that it means they can sell out earlier. I think that's what we saw with the acquisition wave. The majors weren't interested in anything unless it was very close to production and so the juniors had to spend all of that money doing the development themselves, which they're not always qualified to do given the engineering and other expertise needed to do that. They were forced to do things that didn't naturally sit with them, whereas the current model is more [focused to] those that are able to take the risk, to move into new jurisdictions, pick up licenses, do very early-stage reconnaissance, identify the targets, do a little bit of exploration and then—if it's a good quality asset—sell it to the majors.
The market is for the majors to pick assets up earlier than they were looking. It looks somewhat as if the majors are doing the grassroots work, but they aren't. They're really buying earlier stage projects.
NG-GM: How about where most of this activity is taking place? This issue we're investigating how groups elect to dual list, particularly on the Johannesburg Stock Exchange (JSE). Do you see any trend forming around appetite for African exploration vehicles in South Africa?
M. Tyler: The problem remains that you don't have the appetite—the pools of risk capital in Africa that are available in London, Toronto and North America. To use the JSE as a primary listing is likely not that easy. For anything meaningful one would have to have a dual listing at least, where you can tap into the South African appetite to the extent that it exists, and then complete financing by going to another market.
While the pools of capital are not better, once listed and trading, there's a more extensive appetite. What we find is that a lot of companies with dual listings and liquidity and the price is being driven by trades in South Africa whereas institutions in other parts of the world hold for more of a long time: there is a small pool of capital available when one comes to South Africa, but in doing so one gets quite a lot of liquidity.
That could be the attraction, I think. Also, if people were to choose the JSE as a listing and then do capital raising offshore, it would work. It has world-class rules as a trading platform; we just don't have brokers with the same access to the pools of capital available [elsewhere].
I think that there is an appetite for African exploration companies in South Africa, but it has to be a dual listed one.
Once beyond the initial-IPO in South Africa, there's certainly an appetite for providing equity, but I don't think you could do it without tapping into the rest of the markets.
In terms of debt financing, the South African banks are probably as well-placed as many of the international banks.
I think you're seeing a lot more interest from developers looking to secure financing from South African institutions on the debt-side. We are seeing more of that sort of funding going out.
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