Leading mining technology company advisor Atrico remains upbeat about the outlook for funding and growth in the space despite a global economic recession topping the list of potential market headwinds.
“There is still strong interest in high-quality companies with scale, growth and profitability,” managing director Ivan Gustavino tells InvestMETS.com.
“Unprofitable tech companies that are not showing strong revenue growth are struggling to raise funding and many have scaled back spending dramatically.
“As there is still appetite for high-quality companies we expect significant transactions continue to happen in the second half of 2023.
“From our perspective, the first half of this year has been a return to normality after a hectic three years.
“But our growth portfolio is full and our deal pipeline is filling up quickly for a busy H2.”
Atrico director Jason Price says mining tech funds that raised money in recent good times still have cash to deploy. Their focus now is generally on more mature tech companies, he says, though, “as we’ve signalled previously, we believe that PE may start taking earlier bets so that they can gain access to the next generation of companies focused on delivering the energy minerals for the future”.
“In general, the overall financing industry is still working off the exuberance of recent years,” Price says.
“Recently funds have been struggling to raise capital from limited partners.
“Insight Venture Partners and Tiger Global were only able to raise 10-20% of their funding targets, for example.
“The mining tech financing industry did not experience a similar degree of exuberance in earlier years, but will still be impacted by the downturn in risk capital.”
Gustavino says recessionary pressures, overheated global share market indices, the continuing struggles of microcap and small-cap companies on public markets, and higher costs of capital are making life challenging for tech and other firms.
On the plus side for the mining tech sector is the strong long-term demand outlook for battery metals, and the growing number of venture capital and private equity exit successes, most recently involving companies such as Sequent, Micromine and Blast Movement Technologies.
Another tailwind is the surging interest in AI applications in mining and other heavy industries.
“Like others, we have observed an increasingly strong interest in generative AI and AI in general,” says Atrico director Kheong Chee.
“Microsoft’s head of strategy has said the number of companies working on AI that they were tracking increased 100 times over a nine-month period to 8000, largely due to generative AI.
“As AI becomes part of the infrastructure layer and becomes embedded into applications, it will profoundly impact every industry, including mining.
“We think we will continue to see the impact of generative AI on mining tech for a long time to come.”
Gustavino adds: “Similar to mobile and the cloud, we’re seeing generative AI and more broadly, AI, as the next foundational platform for an explosive number of new applications.
“Most of Atrico’s clients already either use AI/ML as a key enabling technology in their solution or are using it as a productivity-enhancing tool.
“With developer tools such as GitHub Copilot and productivity-enhancing AI agents and tools such as Auto-GPT, we think AI can have an 60-90% reduction on the costs of funding a new generation of start-ups plus accelerate their speed to market. In turn, we expect to see reduction of staff at large mining tech companies as they derive productivity uplift from AI and adjust to the higher cost of capital.”
