Mining Journal: Was it always mining for you?

Charlie Gibson: No, I fell into it.

I did straight chemistry at university and I wanted to go into The City. In those days university was a way of training your mind that prepared you to do ‘something’ but not necessarily in the field you studied. Nowadays, secondary school graduates are expected to have decided on a career and then will do a degree that fits them for that career – that notion didn’t exist when I finished school. I went into The City ‘milk round’ before I left university as a chemist. 

I took a stockbroking job with Cazenove on the graduate programme. I knew I wanted to be an analyst – I saw that as the first step to doing anything else. At the time, mining was a real orphan sector in the UK but then South Africa started to open up in the mid-early 1990s and Cazenove asked if I wanted to go out there – I was 27 and it wasn’t a particularly tricky decision. 

They had the five mining houses and all the subsidiaries and that’s when I properly became a mining analyst. And I loved the idea of being at the coal face in South Africa, which had been a closed book. 

MJ: How did it differ from being in London?

CG: The way of doing business and what it meant to be an analyst was very different. In the UK, independent analysis was being introduced with the ascension of Excel spreadsheets; while in South Africa, most of the analysts had been brought through the mines, then management, then had been poached by the finance sector and so it was still about their network – their community of contacts – which could tell you ahead of time if there had been a rockfall at shaft number four or whatever and what that would mean to production etcetera, which in London was tantamount to insider information. It worked in its own way but, from a London perspective, you could see that way of doing business was a thing of the past.

"There were gold companies selling for US$300-400 per ounce of resource – that’s pretty funky stuff"

It was a fascinating time to be brought into the industry when South Africa was the largest gold producer and Anglo American was probably the largest mining company in the world – God knows how much of the South African economy it actually controlled. That’s how Anglo was sold to shareholders: Anglo controls something like 33% of the South African economy so buying Anglo was like buying a share of ‘South Africa plc’. 

MJ: How does your view of the industry differ from that of a CEO?

CG: Analysts are in a privileged position. They can take a negative view on a commodity or a subjective view on a company – these are luxuries a chief executive does not necessarily have. I remember The Economist writing a few years back about what separated good and bad chief executives and what they concluded was, the good ones understood their job was to sell shares in the company – from that sense, it’s very difficult for the chief executive of a gold company to be negative on gold. 

MJ: Would you consider going into a corporate role?

CG: I would consider it.

The insight I could bring would be on the valuation of assets, which is something I don’t think the industry does very well. You can look back at recent acquisitions made by very large mining companies that have been nigh on catastrophic. There are assets for which major companies have overpaid and you wonder how it can be. Sure, they may have got the price wrong or they may have got the point in the cycle wrong, but you can’t help noticing many assets were bought for the top price at the top of the cycle, which raises question marks over the ability of these companies to form realistic long-term views on the commodity cycle.

There were companies buying assets purely to tie up resources. There were gold companies selling for US$300-400 per ounce of resource – that’s pretty funky stuff. 

Of course there is an element of shareholder pressure to do deals and of course there is another freedom the analyst enjoys over the CEO. Ironically, now is the time to be buying assets but many chief executives are speaking the language of ‘shareholder value’ and conserving cash despite now being the perfect time to create value through M&A.

MJ: What’s the biggest issue facing the mining industry?

CG: How much time have you got?

It’s credibility and specifically credibility with investors. The trouble is mining companies both small and large have destroyed colossal amounts of value. There are many companies that have lost about 90% of their value and the chances of recovering that are pretty close to 0%, even if we return to a raging bull market, because they have diluted shareholders so badly. 

That is another disconnect between particularly juniors and the market, in that juniors seem to regard equity funding as ‘free’ whereas it is some of the most expensive funding available and extremely damaging to those shareholders who backed you first time round. 

There are a few junior companies, and I mean very few, whose share prices are at a multiple of where they were three-to-five years ago, and that gives them a fantastic pedigree to go to shareholders and say: “We have created this value.” That’s particularly powerful if it comes from taking an asset from exploration to production, which is just about the hardest thing you can do. That’s a platform those companies should not squander.

MJ: What’s the best wine in the world?

CG: I’m not a wine buff but I’m partial to South African wines and I think that’s because it’s the only wine-producing country I’ve lived in – I was able to drink good wine at reasonable prices. I developed certain tastes that have stuck with me. I’ve very keen on pinot noirs and my favourite pinot is a South African Hamilton Russell (£40 per bottle).

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