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Thank you, Chairman, and welcome to the AGM.
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It's a great pleasure
to be able to address you again.
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It's been many years for me doing this,
and I'm really pleased to be able to do it
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on the back of
some really great numbers.
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So for 2025 we had a fantastic year.
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As you can see from the page here,
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the NAV on a total return
basis was up some 74% in one year.
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And I think
we've looked back into the past
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and we think that's the second best year
ever in the trust
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that it's managed to do in a 12 month
period.
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Also pleasing,
I think, as we alluded to in last year's
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annual report and the interim report is
that income was starting to come back
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and we were able to grow the dividend
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again after a couple of years
of falling payments from the underlying
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ordinary dividends that we've received
from the companies we own.
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So a good year for the trust.
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And as you can see from this slide,
the current year 2026 has also started
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well.
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So after those two down years
prior to 2025,
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we are in a good place today
and the outlook is promising
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and Olivia will address that
in the second half of this presentation
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to put these moves into context.
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We always update you on what
the total return has been since inception.
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Now I'm old enough and have been here
long enough to know what it was
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like on day one, on the 15th of December,
1993.
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A pound a share was raised back then
and you can see the journey through time.
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We've split this out
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into the income element of the return, but
also the capital element of the return.
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And for those shareholders
who've been with us long enough,
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you'll remember the pivot that we made
about 15, 16 years ago
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to make sure that we were maximising
the income potential of the portfolio
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in a sector that relies on income for
the majority of its returns through time.
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And you can see that the difference
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that this has made over that,
over that time period.
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What's also startling
is the difference in return
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that we've been able to generate
as a single sector investment
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trust relative
to a much broader component.
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And we've used the UK market because
that's where we're listed as comparisons.
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And you can see the numbers in the page
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at the bottom of the page in the red text.
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It is fairly startling
in terms of what the sector has done
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and how we've been able to capture
that in terms of dividends.
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You can see the cumulative payments
through time and the line on this chart,
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and then also the bars show you the annual
payments that have come through.
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You can also see that
pivot point back in 2010
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where we sought to maximise
that income potential.
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Obviously, we had some bonanza years
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in the first period of this decade.
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They really were outstanding payments.
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But as I said earlier on, it's interesting
to see that those payments
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have now started to rise again after
a couple of years of falling payments.
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And Olivia will address the commodity
outlook in the second
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half of this presentation.
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Where has the income come from?
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And, you know, also
from previous meetings that we have sought
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not just to focus on income,
but to make sure that we have
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a diversification of payments
coming through to us.
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Relying exclusively on ordinary dividends
means that you're exposed to
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that volatility.
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If we're able to smooth the dividend
journey through time,
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reaching out to other sources of return,
then we're able to manage that volatility
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and hopefully deliver
that superior component of yield
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to maximise the total return,
which is our goal.
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You can see the payment growth
coming through from royalties.
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You can see the component coming
through from option income in this mix.
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Last year was not a big year
for special dividends,
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but we are optimistic
that given some of the commodity prices
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that we're seeing today, that this might
start to come back in our favour.
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Also, from the arbitrage positions
that we've done in the past
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related to fixed income securities,
with interest rates remaining high,
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it's hard
for us to capture that arbitrage
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where historically
that was a lower cost of debt to us versus
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what the industry was paying,
and it was a good source of income.
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But nonetheless, we still look for that.
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And last year we were actually able to capture
some decent yield from one fixed
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income instrument. Specifically
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looking at the portfolio in terms
of its overall positioning.
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You can see the top ten holdings here.
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You can see that
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the gearing is also a little bit lower
than we have done historically.
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And you can see the kind of the shape
of the picture as well by commodity.
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When you look at this,
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I think just the first comment
on gearing is that it's now lower.
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We're in an environment today
where there's a lot of volatility.
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Every day there's new news related
to the conflict in the Middle East,
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and markets tend to go up and down
substantially just on those daily moves.
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And for us to have a lot of risk
deployed in the portfolio
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and that enhanced
by a high level of gearing seems
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right now to be
despite the positive underlying tone.
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It just seems an unnecessary factor
to us to build into it and create
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a higher kind of level of volatility
in our own NAV and share price.
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So we're running
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a slightly more cautious position
just because of this factor alone.
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Having said that, if you were to strip
that news out of the world
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and there was to be
a cessation of activities there,
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I think people would then reach back
and focus on the underlying trends,
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which we continue to see
as incredibly positive in this space.
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The demand growth, the supply
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challenges, etc., which we'll address later
remain ever present.
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And that's what's causing
these commodity prices to be
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at levels which are very attractive
to the underlying producers.
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So just to give you a taste of
what's going to come in
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the second half of this presentation,
looking at the commodity mix.
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Just to remind
you, we have two approaches to this.
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One is the definition
of commodity mix by listing
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so how the companies are characterised
in their own definitions.
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But then we've also done
what we call the virtual mining company.
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And this is something that we've been able
to share
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with investors
for the last couple of years.
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So this is the kind of see
through commodity analysis.
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So if you have a large diversified
mining company like a BHP or a Rio Tinto,
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they're classified on
one side of the page as diversified.
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And on the other side of the page
we've taken that overall weighting
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and we've reallocated it based upon
where that company is truly exposed.
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You could do this by revenue.
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You could do this by profits,
you could do this by EBITDA.
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And you get a slightly different mix in
terms of the overall commodity exposure.
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So the copper component
has obviously grown substantially
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or becomes much clearer
because a lot of those companies
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have that kind of diversified
mix orientated towards iron ore.
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And that gives you a truer picture
of where
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our underlying sensitivities to our own
NAV come from.
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And we hope that that is helpful
to the shareholders in thinking about
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the mining trust as a whole.
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You can see the performance
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also of the trust versus
what we like to think of as listed peers.
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This might be a bit ambitious
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to think that the small company, like
the trust, can look at to compare itself
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to the kind of mining behemoths
that exist out there in the market.
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But nonetheless, it's
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something that we take into consideration,
because at the end of the day,
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if we're able to deliver that virtual
mining company thesis, we're able to pivot
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the commodity exposure a little bit
more rapidly than those listed peers.
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And that should give us an advantage
in being able to to move faster, capture
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the return, and then
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be able to move on quicker than others
because we're not locked into asset
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exposure for decades,
as many of those companies are.
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And it's nice to see that the performance
there has been pretty strong for us
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relative to that peer group.
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One area that we always update you on
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is the unquoted part of the portfolio,
and last year has been a pretty remarkable
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year for this
in particular with regards
00:08:13:23 - 00:08:15:21
to something
that we'll touch on in a second.
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So just to remind you,
as at the end of December, we had
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about 4% of the exposure of the overall
NAV through to unquoted investments.
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And that that is less than last year
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in terms of total exposure
and also less in terms of the number.
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And the reason for that is we managed
to achieve a very successful exit
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to our largest
pure royalty position in the portfolio.
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Now, the first question might be
why did you sell this?
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And it's important to understand
the journey that we've been on.
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When we started with this investment,
we invested $12 million into this royalty.
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When the company just had a dream,
they had a project in Brazil,
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and we were backing a real
start up entity.
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And then through time,
we were able to get all of that money back
00:09:05:14 - 00:09:09:05
and very high levels of regular payments
from that royalty
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as those mines evolved, matured and
in the first case,
00:09:12:17 - 00:09:17:08
the original mine, ended its own life
and they went into a second operation.
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The second component of this
is that the company changed ownership.
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So we went from a small developer
to a large mid-cap company in Australia
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because they bought the original entity,
and then the world's
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largest mining company
ended up with ownership of this BHP.
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And we were able to have a royalty
with BHP for a very, very attractive
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entry price many, many years
before they ended up owning it.
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And then BHP, because this was a small
business, started to conduct
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a sale process because it was non-core
to their broader portfolio.
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So having
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been through that ownership journey,
where we've started from a small cap, high
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risk company to the world's largest,
one of the best operating
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companies out there, that was a really,
really successful journey.
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At the same time, we were able
to get a price for selling this
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that we thought was very attractive
and still think that that is
00:10:08:02 - 00:10:09:08
that is the case today.
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So the combination of those factors
to be able to monetise that return,
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having harvested
all along the journey
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and then seek to redeploy that money
into new opportunities.
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And, and pleased to say
we're going to give you
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an update on one of those in a second.
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That was the rationale behind this.
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So we're very pleased with that.
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Nearly ten times return on the investment
that we made
00:10:30:29 - 00:10:32:20
about ten years ago.
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The Vale debentures,
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you'll know that we substantially
increased our exposure to these in 2019,
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having originally received them
as part of the IPO of Vale
00:10:43:18 - 00:10:45:05
back in the 1990s.
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So these have been, again,
a really, really important
00:10:48:06 - 00:10:50:09
component of return for us.
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These are very high yielding.
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They're perpetual in nature.
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And as you can see on the chart,
these payments have been growing nicely
00:10:57:15 - 00:11:00:17
through time
linked directly to commodity prices.
00:11:00:17 - 00:11:03:23
So avoiding any kind of cost exposure
that you have
00:11:03:23 - 00:11:06:23
in terms of operating earnings
and therefore see through dividends,
00:11:06:23 - 00:11:09:17
we've actually been able
to increase exposure to this recently
00:11:09:17 - 00:11:11:27
because there have been opportunities
to buy more in the market,
00:11:11:27 - 00:11:15:21
and we would hope to be able to manage
that exposure through time
00:11:15:21 - 00:11:18:00
in the context of the overall portfolio.
00:11:19:19 - 00:11:23:00
Jetti Resources is a technology
company related to copper.
00:11:23:05 - 00:11:26:27
Frustratingly for this business,
it's taken a lot longer for them to deploy
00:11:26:27 - 00:11:30:14
that technology at one of the world's
largest copper mining assets.
00:11:30:15 - 00:11:31:29
There is still a process going on.
00:11:31:29 - 00:11:35:29
It's still planned to be deployed,
but as a result of the longer
00:11:35:29 - 00:11:38:29
sales cycle,
we've actually taken the valuation down.
00:11:38:29 - 00:11:40:29
You'll remember that
when we first bought into this,
00:11:40:29 - 00:11:43:11
not long afterwards,
there was a secondary round
00:11:43:11 - 00:11:47:23
that prompted an uplift in its valuation
because people were paying a higher price
00:11:47:23 - 00:11:48:20
to get into it.
00:11:48:20 - 00:11:52:02
And now we've had this slower cycle
where we're now back down to a carrying value
00:11:52:02 - 00:11:53:29
that's linked to the original entry price.
00:11:53:29 - 00:11:57:12
So we're monitoring this one
to make sure that the company deploys
00:11:57:12 - 00:11:58:24
that technology into that asset.
00:11:58:24 - 00:12:00:18
And that could be a catalyst.
00:12:00:18 - 00:12:04:00
No pun intended, given that that's
what they're using to be able
00:12:04:03 - 00:12:07:14
to hold that value and move it further
forward into the future.
00:12:08:05 - 00:12:10:20
And the latest bit of news, sorry,
00:12:10:20 - 00:12:14:05
this is one
we've already had a little bit earlier.
00:12:14:05 - 00:12:17:17
MCC Mining is an exploration in Colombia.
00:12:17:17 - 00:12:21:29
This company has a wealth of really,
really prospective targets
00:12:21:29 - 00:12:25:09
in partnership with some of the world's
biggest and best mining companies.
00:12:25:09 - 00:12:27:09
It's very exciting right now.
00:12:27:09 - 00:12:30:20
Some of the most recent results
allude to some really
00:12:31:11 - 00:12:34:06
big scale geological potential here,
00:12:34:06 - 00:12:37:08
We're actually in the midst of an election
process in Colombia.
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So I think that process concludes
towards the end of this week,
00:12:40:12 - 00:12:44:15
or maybe at the end of next week,
and we'll be watching carefully to see
00:12:44:17 - 00:12:47:29
who is elected
and what their stances are towards
00:12:47:29 - 00:12:50:20
mining in the country,
because that will be a key determinant
00:12:50:20 - 00:12:53:24
as to how that company raises capital
in the future.
00:12:53:24 - 00:12:57:05
But nonetheless, from the geology
point of view, this is very exciting.
00:12:57:05 - 00:13:00:20
The company has continued to raise capital
at higher prices.
00:13:00:20 - 00:13:02:27
We've participated in those rounds,
00:13:02:27 - 00:13:06:02
and we've adjusted the valuation
to reflect those new pricing points
00:13:06:02 - 00:13:09:02
that people have been buying shares
at in this business.
00:13:09:02 - 00:13:12:02
Again, just over
1% of the portfolio’s NAV.
00:13:12:05 - 00:13:15:05
And then the latest bit of news
and this is brand new.
00:13:15:05 - 00:13:18:08
It's not material
because of the size we've invested
00:13:18:08 - 00:13:22:09
in an early stage project in Romania.
00:13:22:11 - 00:13:26:11
This is a copper and gold prospect.
00:13:26:11 - 00:13:30:14
Well, actually mostly gold prospect
that it has the potential to become,
00:13:30:15 - 00:13:32:05
you know, fairly material in size.
00:13:32:05 - 00:13:34:17
However, it is very, very early stage.
00:13:34:17 - 00:13:37:05
This isn't even fully permitted today.
00:13:37:05 - 00:13:40:29
And the district has this incredible
geological potential.
00:13:40:29 - 00:13:42:23
So we've sized this appropriately.
00:13:42:23 - 00:13:46:17
And you might think that 17 basis points
is too small.
00:13:46:17 - 00:13:50:23
But when you've been through journeys
with early stage companies in the past
00:13:50:23 - 00:13:54:17
in high risk locations,
I think this is appropriately sized.
00:13:54:17 - 00:13:58:18
But we do have a good belief
in the management team that we've
00:13:58:20 - 00:14:02:17
backed in this regard, good belief
in the partners that have come in
00:14:02:17 - 00:14:04:11
into this early stage as well.
00:14:04:11 - 00:14:08:14
And if that can be delivered,
you know, there's an exciting path ahead.
00:14:08:17 - 00:14:10:09
Thank you. I'm
going to hand over to Olivia.
00:14:11:03 - 00:14:12:15
Thank you Evy.
00:14:12:15 - 00:14:14:18
So in the second
half of this presentation, we're going
00:14:14:18 - 00:14:18:10
to spend some time on the outlook
from top down on the sector
00:14:18:10 - 00:14:21:21
and also spend a little bit of time
on the commodities themselves.
00:14:21:21 - 00:14:25:27
So just to sort of put
the performance of the sector in context,
00:14:25:27 - 00:14:28:28
it was obviously a very strong year
for the mining sector
00:14:28:28 - 00:14:32:10
overall, particularly strong
amongst the gold equities.
00:14:32:10 - 00:14:34:24
But I think actually
what's quite pleasing to see
00:14:34:24 - 00:14:35:25
is that if you actually look
00:14:35:25 - 00:14:39:06
at the performance of the sector
over the last five years, it's actually
00:14:39:06 - 00:14:44:00
held up very well relative to broader
markets, as represented by MSCI ACWI.
00:14:44:01 - 00:14:48:03
And actually now we're starting
to see that outperformance come through,
00:14:48:04 - 00:14:52:01
which you can see more come through
on the second chart there on the right.
00:14:52:03 - 00:14:56:28
So I do believe that we are still in the
very much the early stages of this cycle.
00:14:56:28 - 00:15:00:10
And we'll talk through some of
those factors, which is driving this.
00:15:01:04 - 00:15:04:16
Now, it's quite interesting
because I think if everyone in this room
00:15:04:16 - 00:15:07:16
picked up the FT and they read about
what's happening in the markets,
00:15:07:21 - 00:15:10:07
probably focus on Iran,
they probably focus on AI.
00:15:10:07 - 00:15:14:07
And that's clearly been the two factors
that have been driving the overall market.
00:15:14:12 - 00:15:18:18
But if you actually start to look
at the components and the building blocks
00:15:18:18 - 00:15:24:03
of AI or many of the other large themes,
they actually all link back to mining.
00:15:24:03 - 00:15:26:15
You know, we need to
build out the AI data centres.
00:15:26:15 - 00:15:28:04
We need to power the data centres.
00:15:28:04 - 00:15:29:24
We need to upgrade the grid.
00:15:29:24 - 00:15:31:15
We need to invest more in defence.
00:15:31:15 - 00:15:33:18
We need to think more about energy
independence.
00:15:33:18 - 00:15:37:21
This is all heavily
reliant on metals and mining.
00:15:37:21 - 00:15:41:21
And so when we look at global GDP
and we've just highlighted here
00:15:41:21 - 00:15:45:15
two sectors being manufacturing
and industry, which are clearly
00:15:45:19 - 00:15:48:00
very heavily
reliant on metals and materials.
00:15:48:00 - 00:15:51:00
That's about 40% of global GDP.
00:15:51:09 - 00:15:54:22
However, the mining sector as represented
00:15:54:22 - 00:15:57:27
in financial markets is a mere 2%.
00:15:57:27 - 00:16:00:15
And I think that just brings
an interesting question.
00:16:00:15 - 00:16:02:06
Is that weighting correct?
00:16:02:06 - 00:16:06:15
Because we fundamentally believe
that this sector is underrepresented
00:16:06:15 - 00:16:07:21
in financial markets.
00:16:07:21 - 00:16:11:16
And as we go through this next cycle,
I believe that's going to start to change.
00:16:13:16 - 00:16:15:19
The other key feature
00:16:15:19 - 00:16:20:01
last year was really around
the growing recognition,
00:16:20:07 - 00:16:23:21
principally by governments
of the strategic importance
00:16:23:21 - 00:16:27:25
of commodities,
and we've seen a complete shift in this.
00:16:27:25 - 00:16:30:25
A lot of this has been driven
by the White House.
00:16:30:27 - 00:16:35:25
But metals, critical minerals
are being recognised
00:16:35:25 - 00:16:40:04
as strategic
and of incredible geopolitical importance.
00:16:40:04 - 00:16:44:03
Now, most of this has focused
on the rare earths markets.
00:16:44:03 - 00:16:45:06
And that's natural.
00:16:45:06 - 00:16:49:22
The key for defence, for advanced
manufacturing, for electronics,
00:16:49:28 - 00:16:55:18
however, China has a complete
stranglehold and dominance of that market.
00:16:55:21 - 00:16:59:13
But what I don't think
people properly understand is it's
00:16:59:13 - 00:17:01:19
not just contained to rare earths.
00:17:01:19 - 00:17:05:16
China has a dominant position,
particularly in the end
00:17:05:18 - 00:17:11:09
processing of many metals
from copper, aluminium, steel, rare earths,
00:17:11:10 - 00:17:15:21
and even more of those niche metals,
which are very important for a number of
00:17:15:22 - 00:17:17:27
kind of key government initiatives.
00:17:17:27 - 00:17:23:06
So we believe that this is something that
is going to remain focal for governments.
00:17:23:06 - 00:17:25:15
It's leading to additional funding.
00:17:25:15 - 00:17:26:21
We're seeing price floors.
00:17:26:21 - 00:17:29:18
We're seeing direct equity investments
coming from government.
00:17:29:18 - 00:17:33:15
And this is a complete sea change
from where we were a couple of years ago.
00:17:33:15 - 00:17:34:19
So this is something.
00:17:34:19 - 00:17:35:10
Watch this space.
00:17:35:10 - 00:17:38:19
And what it's really doing is putting the
mining sector up in the headlights again.
00:17:38:21 - 00:17:41:21
And just in terms of people's
general awareness of the space
00:17:42:22 - 00:17:44:00
now, in terms of
00:17:44:00 - 00:17:48:03
we often in these presentations
talk through some of these longer term
00:17:48:03 - 00:17:52:10
structural demands,
and they're still absolutely ever present.
00:17:52:12 - 00:17:54:15
You know, we are in an environment now
00:17:54:15 - 00:17:59:01
where infrastructure demands
are increasing over the next 15 years.
00:17:59:01 - 00:18:00:06
We're going to spend three times
00:18:00:06 - 00:18:04:03
the amount of money on infrastructure
than we did in the last 15 years.
00:18:04:04 - 00:18:08:06
We're seeing more and more of the global
population move up into that middle
00:18:08:06 - 00:18:11:15
income bracket
where they want to start buying a car,
00:18:11:15 - 00:18:14:03
they want air conditioning for their home,
they want clean water.
00:18:14:03 - 00:18:16:27
All of these things are more metals
intensive.
00:18:16:27 - 00:18:19:25
The CapEx spend
00:18:19:25 - 00:18:23:21
by the tech hyperscalers into
AI is enormous.
00:18:23:22 - 00:18:27:13
It's actually quite hard to almost begin
to comprehend some of these numbers.
00:18:27:24 - 00:18:31:27
Rough rule of thumb
is about one third of the tech
00:18:31:27 - 00:18:35:13
hyperscalers spend on
AI is into energy and power.
00:18:35:13 - 00:18:37:03
And that brings back to metals.
00:18:37:03 - 00:18:40:28
And if you compare that number
to the amount of money that the
00:18:40:28 - 00:18:44:27
mining sector itself is spending on CapEx,
there's a huge gap here.
00:18:44:27 - 00:18:45:27
So we are going to be
00:18:45:27 - 00:18:49:06
in this prolonged period
where we're going to have to continue
00:18:49:06 - 00:18:52:07
to incentivize
more and more supply into the market,
00:18:52:07 - 00:18:55:18
and we're going to largely do that
through higher commodity prices.
00:18:56:01 - 00:18:59:15
The other kind of ongoing, longer term
structural demand
00:18:59:18 - 00:19:03:22
theme is around electrification,
the energy transition.
00:19:03:24 - 00:19:08:22
Maybe there's been a slight pause in some
of this in terms of headlines and policy.
00:19:08:24 - 00:19:11:09
However, the build out continues.
00:19:11:09 - 00:19:14:27
If you have a look in China,
they continue to add incredible amounts
00:19:14:27 - 00:19:19:15
of renewable capacity
and generation to the country each year.
00:19:19:15 - 00:19:22:03
And that is continuing now through the US.
00:19:22:03 - 00:19:23:24
And it's moving into Europe as well.
00:19:23:24 - 00:19:28:06
And that all goes back to demand
for copper, for aluminium
00:19:28:10 - 00:19:31:10
demand for energy storage systems,
which requires lithium.
00:19:31:10 - 00:19:35:00
It's much more metals
intensive relative to the fossil
00:19:35:00 - 00:19:38:00
fuel based power
that we've historically relied upon.
00:19:38:00 - 00:19:40:16
So all of these
are these sort of under themes that are
00:19:40:16 - 00:19:44:15
that are driving the sector
on the demand side of the equation.
00:19:44:21 - 00:19:47:03
The one area
that we must touch on is China,
00:19:47:03 - 00:19:51:03
because China still remains
and will likely always remain, you know,
00:19:51:04 - 00:19:54:04
the world's largest
consumer of commodities.
00:19:54:06 - 00:19:58:03
But it's really important to understand
the journey that China has been on.
00:19:58:09 - 00:20:03:03
If we think back to the last cycle,
the last cycle was a cycle
00:20:03:04 - 00:20:08:21
which was very fixed asset
heavy, steel intensive build up,
00:20:08:21 - 00:20:10:03
be it through the property sector
00:20:10:03 - 00:20:13:07
and through some
some of the early stage infrastructure.
00:20:13:07 - 00:20:16:24
And as you can see,
as you look at the chart on the left,
00:20:16:25 - 00:20:21:04
this is just looking at floor space
under construction in China.
00:20:21:04 - 00:20:25:27
So the property market and you can see
that it has been in perpetual decline
00:20:25:27 - 00:20:30:03
really
since the peak of the last cycle in 2012.
00:20:30:06 - 00:20:31:09
This is known to us.
00:20:31:09 - 00:20:33:27
We've been living through this journey
for a number of years,
00:20:33:27 - 00:20:37:07
but where China is rapidly
deploying capital
00:20:37:07 - 00:20:42:03
and is leading on all fronts
is it's build out of its green economy.
00:20:42:07 - 00:20:46:09
You know, it is an absolute leader
in terms of additional renewable
00:20:46:09 - 00:20:50:13
power generation through wind and solar
that it adds to its country each year.
00:20:50:13 - 00:20:54:06
It has, you know, huge copper
00:20:54:06 - 00:20:58:03
requirements around in terms
of building out and upgrading its grid.
00:20:58:04 - 00:21:01:21
Its leading in advanced
manufacturing is going to be the leader
00:21:01:21 - 00:21:04:24
in, you know, robotics
and electronics in the future.
00:21:04:24 - 00:21:07:28
So China's commodity demand remains strong.
00:21:08:00 - 00:21:09:27
The nature of the commodity
demand has changed.
00:21:09:27 - 00:21:12:15
And that's what we are able
to take advantage of
00:21:12:15 - 00:21:15:15
in terms of our portfolio
and how we weight the commodities.
00:21:16:25 - 00:21:19:07
Now, we've
spent quite a bit of time on demand.
00:21:19:07 - 00:21:24:09
We do remain positive on the outlook
for this next cycle.
00:21:24:15 - 00:21:29:00
This next cycle is going to be much more
driven around that sort of newer economy
00:21:29:00 - 00:21:32:15
and investments into electrification,
into AI,
00:21:33:00 - 00:21:36:00
into defence, into advanced manufacturing.
00:21:36:16 - 00:21:40:09
The supply side of the equation has,
as you can see,
00:21:40:10 - 00:21:43:25
where you look at the chart on the left
hand side is struggling to keep up
00:21:43:25 - 00:21:49:04
with essentially being in an environment
now for ten years of underinvestment.
00:21:49:12 - 00:21:53:19
Yes, capital spending is moving up,
but if you
00:21:53:21 - 00:21:56:27
adjust that capital
spending for inflation,
00:21:56:28 - 00:22:01:00
it is still well below peaks,
as you can see by that red line.
00:22:01:00 - 00:22:05:28
And the majority of capital spending
today is largely on sustaining capital.
00:22:05:28 - 00:22:09:12
What you simply have to spend
to keep production flat.
00:22:09:15 - 00:22:12:15
So supply is constrained.
00:22:12:18 - 00:22:15:18
To add to that, last year we went through
00:22:15:18 - 00:22:19:16
one of the largest disruptions
that we've ever seen to the copper market.
00:22:19:18 - 00:22:23:19
We had over 7% of the copper market
impacted last year,
00:22:23:21 - 00:22:27:13
with three of the world's
largest operations being suspended.
00:22:27:15 - 00:22:30:27
Now, that's a that's an unusual event,
but I think it
00:22:30:28 - 00:22:34:00
highlights just how tight
some of these commodity markets are.
00:22:34:01 - 00:22:34:25
And actually,
00:22:34:25 - 00:22:39:03
as we go into this year, we're continuing
to see further downgrades to supply.
00:22:39:03 - 00:22:43:19
So we are in this environment principally
because capital has been restrained
00:22:43:19 - 00:22:47:25
for ten years, that we have
a limited supply response to higher
00:22:47:28 - 00:22:53:15
commodity prices in the instant, but also
existing suppliers kind of struggling.
00:22:53:15 - 00:22:56:27
So the environment leads itself to tight
00:22:56:27 - 00:23:01:13
commodity markets, moving
commodity prices that need to move up
00:23:01:13 - 00:23:04:15
to that incentive price
to try and bring more supply in.
00:23:04:15 - 00:23:08:09
And that's the sort of environment
that we're moving into now.
00:23:08:09 - 00:23:12:10
We've talked about some of the challenges
around supply companies as a result of
00:23:12:12 - 00:23:16:25
that kind of underinvestment
during the down cycle, have limited growth
00:23:16:25 - 00:23:21:12
opportunities and a deep pipeline of
earlier stage projects in their pipeline.
00:23:21:15 - 00:23:26:13
As a result of that, we are beginning
to see more M&A come into the space.
00:23:26:21 - 00:23:30:12
That's also been exacerbated
by increasing capital
00:23:30:12 - 00:23:32:15
intensity of building new projects.
00:23:32:15 - 00:23:37:27
So that classic sitting in the boardroom,
buy versus build kind of discussion,
00:23:38:09 - 00:23:42:09
the buy argument has become more positive
as we've gone
00:23:42:09 - 00:23:44:06
through an environment
with those few growth options,
00:23:44:06 - 00:23:46:16
but also the cost of building
the growth has gone up as well.
00:23:46:16 - 00:23:49:16
So we have seen over the last
00:23:49:22 - 00:23:53:01
12 to 18 months
an increase in M&A activity.
00:23:53:03 - 00:23:55:25
Some of that has been at the lower
end of town, some of that's
00:23:55:25 - 00:23:59:15
been with much larger companies,
but in general,
00:23:59:27 - 00:24:03:21
they've all been fairly sensible,
value-accretive deals,
00:24:03:21 - 00:24:08:09
and it's very different from,
say, the last cycle, where we used debt
00:24:08:10 - 00:24:12:06
largely to fund some of the transactions,
where today we're doing equity deals.
00:24:12:12 - 00:24:14:25
Shareholder
returns are very much in focus.
00:24:14:25 - 00:24:19:19
We've generally seen M&A
being quite accretive for this space.
00:24:19:19 - 00:24:22:24
And it's also important
because as we talked in those couple
00:24:22:25 - 00:24:27:09
of opening slides, this is a sector
that struggles for financial relevance.
00:24:27:15 - 00:24:30:25
Now we do need to see bigger companies
in the space.
00:24:30:25 - 00:24:33:03
We need to see more consolidation.
00:24:33:03 - 00:24:37:09
We have fewer and fewer people that have
got the capabilities of building projects.
00:24:37:09 - 00:24:39:21
So by combining companies,
you bring in those expertise.
00:24:39:21 - 00:24:41:16
So there are some natural reasons,
00:24:41:16 - 00:24:45:27
obviously with a sensible value lens
that M&A does make sense in this space.
00:24:45:27 - 00:24:49:21
So I think more to watch in terms of
that as we move through the course
00:24:49:21 - 00:24:50:15
of this year.
00:24:52:00 - 00:24:53:03
Finally, a couple of points
00:24:53:03 - 00:24:57:03
just on valuations
and the overall health of the companies.
00:24:57:03 - 00:25:01:03
The sector continues to trade
with a very strong balance sheet.
00:25:01:09 - 00:25:05:07
This is a sector
who used to trade on a three times
00:25:05:07 - 00:25:07:03
that of net debt to EBITDA ratio.
00:25:07:03 - 00:25:10:21
Now that's sort of one times
the sector pays out.
00:25:10:22 - 00:25:12:28
Still a very healthy level of dividend.
00:25:12:28 - 00:25:14:09
Evy alluded to before.
00:25:14:09 - 00:25:17:27
With the move up in commodity
prices, earnings are suggestive
00:25:17:27 - 00:25:20:15
that we should be seeing
some dividend increases come through,
00:25:20:15 - 00:25:22:12
and we're hopeful of seeing that coming
through this year.
00:25:22:12 - 00:25:24:06
It's already begun to start.
00:25:24:06 - 00:25:26:12
Yet despite all of the improvements
00:25:26:12 - 00:25:29:15
that we've seen in terms
of the corporate health of the sector,
00:25:29:18 - 00:25:33:21
the rising relevance in terms of the need
for more metals for the future,
00:25:33:21 - 00:25:35:09
for the growth that we see.
00:25:35:09 - 00:25:39:01
We have a sector that continues
to trade below in its own
00:25:39:01 - 00:25:43:15
historical multiple, and at a very large
disconnect to broader markets.
00:25:43:27 - 00:25:46:04
We're starting
to see some improvements on this.
00:25:46:04 - 00:25:50:04
You've seen the multiples re-rate a bit,
but we've still got a long way to go in
00:25:50:04 - 00:25:53:27
terms of companies just even returning
to the multiple that they used to trade at
00:25:53:27 - 00:25:54:22
last cycle.
00:25:56:12 - 00:25:57:16
And then finally before we
00:25:57:16 - 00:26:00:15
kind of just conclude
we just want to spend
00:26:00:15 - 00:26:04:18
a little bit of time on gold, given
how much it represents the portfolio.
00:26:04:18 - 00:26:06:28
In last year,
it was the largest allocation
00:26:06:28 - 00:26:09:04
that we've ever had to gold
and the precious metals,
00:26:09:04 - 00:26:13:12
a little under 40% of the portfolio
and obviously very strong
00:26:13:12 - 00:26:15:10
performance of the gold price, up 60%.
00:26:15:10 - 00:26:18:00
The equity is up over 100% last year.
00:26:18:00 - 00:26:20:27
So if we think about gold itself
and those drivers,
00:26:20:27 - 00:26:23:27
there were a range of different drivers
we had.
00:26:24:06 - 00:26:27:00
We had obviously last year
geopolitical uncertainty.
00:26:27:00 - 00:26:29:15
We’ve had some macro uncertainty.
00:26:29:15 - 00:26:33:03
We've had ever expanding government
balance sheets,
00:26:33:06 - 00:26:36:21
people concerned around the strength
of fiat currencies
00:26:36:21 - 00:26:39:13
and the ongoing devaluation
that we've seen there.
00:26:39:13 - 00:26:43:19
And then on top of that, we've continued
to see central banks really stepping in
00:26:43:19 - 00:26:47:07
and increasing their gold purchases
over the last three years.
00:26:47:16 - 00:26:51:09
You know, there's always a different
range of factors that are driving gold.
00:26:51:10 - 00:26:53:07
And where we are today.
00:26:53:07 - 00:26:56:19
We've seen very strong performance
in the gold price at the back
00:26:56:19 - 00:27:00:18
end of last year, with the gold prices up
modestly this year.
00:27:00:18 - 00:27:04:13
But I think the longer term drivers
around gold, and primarily
00:27:04:13 - 00:27:07:27
I think that chart on the top left
hand corner around
00:27:07:27 - 00:27:12:16
governments and their ever increasing
spending needs and their worsening
00:27:12:16 - 00:27:16:25
and worsening
fiscal position, makes us really question
00:27:16:27 - 00:27:20:10
the value of currencies
linked to governments.
00:27:20:10 - 00:27:24:27
And gold is such a great hedge
in that environment, holding its value
00:27:24:28 - 00:27:25:24
through real terms.
00:27:25:24 - 00:27:27:06
And I do think that holds
00:27:27:06 - 00:27:30:06
it makes a really good environment
for the gold price longer term.
00:27:30:09 - 00:27:33:27
Now for us in the portfolio,
we're investing in the gold equities.
00:27:34:00 - 00:27:37:00
What was very, very encouraging to see
00:27:37:00 - 00:27:41:18
is that the gold equities delivered
that positive beta to the gold price.
00:27:41:19 - 00:27:43:27
You can see on these two bottom charts,
00:27:43:27 - 00:27:47:21
we've seen a rapid expansion in margins
that has come through.
00:27:47:21 - 00:27:51:03
And free cash flow generation that's
come through from the gold producers,
00:27:51:03 - 00:27:57:04
that has led them to: a) really strengthen
their balance sheets; b) step up dividends.
00:27:57:04 - 00:28:00:18
And we're also seeing some buybacks
coming through as well.
00:28:00:18 - 00:28:01:19
And whilst
00:28:01:19 - 00:28:05:15
we are seeing some capital spending
come through, it still is disciplined.
00:28:05:16 - 00:28:08:27
You know we're not seeing like
we've seen in previous cycles
00:28:08:28 - 00:28:12:27
and move up in the gold price,
a sudden acceleration in CapEx spending or
00:28:12:27 - 00:28:14:18
dropping of cut-off grades, etc.
00:28:14:18 - 00:28:15:28
We're not into that cycle yet.
00:28:15:28 - 00:28:18:16
So we're very pleased by the discipline
00:28:18:16 - 00:28:21:03
that we're seeing broadly
across the entire sector,
00:28:21:03 - 00:28:24:06
and we hope that it continues
for a few more years to come.
00:28:24:15 - 00:28:28:00
So just to conclude, you know,
I've alluded to this already.
00:28:28:01 - 00:28:31:21
You know, we remain positive
on the outlook for the sector.
00:28:31:27 - 00:28:35:10
We're seeing rising global AI CapEx spend
00:28:35:14 - 00:28:38:07
Electrification keeps on going.
00:28:38:09 - 00:28:41:12
And we're going to see, in our view,
just a natural kind
00:28:41:12 - 00:28:45:10
of increasing commodity
intensity of GDP as we go forward.
00:28:45:19 - 00:28:47:22
Governments are stepping up.
00:28:47:22 - 00:28:51:21
They're really recognising
the importance of the sector,
00:28:51:21 - 00:28:55:15
the need for metals with all of their kind
of longer term objectives.
00:28:55:21 - 00:28:58:12
And I think that's just,
you know, a bringing the mining sector
00:28:58:12 - 00:29:02:07
into the spotlight, but it's also
resulting in attractive funding,
00:29:02:09 - 00:29:05:09
improved permitting for the space
as well.
00:29:05:09 - 00:29:06:15
Supply remains constrained.
00:29:06:15 - 00:29:08:09
We spent a lot of time on that already.
00:29:08:09 - 00:29:12:04
It really does act as a really good
balance to keep commodity markets tight.
00:29:12:13 - 00:29:16:21
The sector remains trading
below its own historical multiple
00:29:16:21 - 00:29:19:21
and a big multiple disconnect
versus broader markets.
00:29:19:22 - 00:29:22:22
Obviously,
we need to watch what's happening
00:29:22:22 - 00:29:26:16
in the Middle East with that direct flow
through impact to the producers
00:29:26:16 - 00:29:30:04
from higher oil prices,
but also second order effects of that.
00:29:30:04 - 00:29:32:09
But we're watching that very closely.
00:29:32:09 - 00:29:35:06
And as Evy alluded to earlier
in the presentation,
00:29:35:06 - 00:29:35:21
you know,
00:29:35:21 - 00:29:39:15
having had a couple of years of kind
of dividends across the space moving down,
00:29:39:16 - 00:29:43:09
we remain optimistic that with the move
up in the commodity prices
00:29:43:09 - 00:29:46:00
and the early signs
that we're seeing that we're going to see
00:29:46:00 - 00:29:48:24
rising dividends across the space
this year as well.
