Mining tech investment outlook 2023


Richard Roberts

Editor in chief

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Image: Anglo American
‘There’s never been more deals done in mining tech than the past two years’

Mining technology acquisition and financing deals are still flowing and those who most closely watch the space say the trend should continue, though they attach some caveats. A slowdown in the first quarter of 2023 wasn’t unexpected after more than US$6.2 billion of transactions were brokered in 2021-2022.

About $450 million of mining/metals tech financing and acquisitions have been reported in Q1.

The $6.2 billion-plus included some significant early private and public equity capital flows into lithium and other mineral extraction technology companies, as well as about 90 transactions involving more traditional exploration, mine development and production, and mineral processing tech firms.

Australian specialist advisory firm, Atrico, which has been on the sell or buy side of more than $1 billion worth of deals in the past decade, saw its engagements rise sharply in 2021 and 2022.

“There’s never been more deals done in mining tech than the past two years,” says Atrico co-founder and managing director Ivan Gustavino, who’s involvement with mining technology businesses spans four decades.

“We’ve seen an explosion of deals.”

Atrico’s 10 significant engagements in the past three years compares with the same number in the previous decade.

It has been involved in some of the major sector transactions in recent times, including the $623 million Micromine sale to US-based AspenTech. It has also advised management teams at a number of standout growth firms in the past 10 years.

Gustavino says a wave of large mining-tech acquisitions in the past 2-3 years – many involving the industry’s heavyweight equipment manufacturers – has helped draw wider investor attention to the sector.

But the bigger, heavier pull is mining’s perceived starring role in the global energy and transport transition, coupled with mounting problems as it tackles rapid production growth while acquiescing to changing community and government standards.

That is bringing different end-users of minerals and metals into mining projects and even beyond, to the underlying technology and innovation ecosystem.

“Mining is seen to have 10 years or more of strong growth ahead,” Gustavino says.

“Everyone is banking on new energy minerals.

“And the money inflow from that is significant.

“And the different players coming in are significant.

“Corporations [suppliers] that have never had minerals or mining as a potential market they wanted to serve are reconsidering. That’s been a big shift.

“Existing suppliers have accelerated their acquisition strategies.

“Most of the deals with scale that were private have gone. So there’s a dearth of supply at scale.

“This means more money is going to come back into investing in some of those [tech growth companies] rather than waiting for them.”

Outside of a sprinkling of larger tech-company venture backing and some modest public and private equity market interest, this area has been a funding desert for the sector up until the past couple of years.

Scale-up venture funding for companies such as Plotlogic, MineSense, SafeAI, Emesent, Jetti Resources, First Mode, Fleet Space Technologies, Open Mineral, Skycatch, Built Robotics, Circulor and others has been seen as a welcome shift.

However, momentum remains dependent on relatively few actors.

“There are seedlings,” says Foundamental and Chrysalix Venture Capital advisory board member, Peter Bryant, who heads US advisory firm, Clareo.

“We’ve seen the advent of corporate venture capital with BHP, Vale, Codelco and others. Mining has been the only industry that hasn’t had it.

“The US is starting to become more vibrant around mining [technology]. We’re seeing people like JP Morgan, T Rowe Price and Apollo Projects start investing in mining start-ups.

“The current situation is promising because five years ago – even three – you and I wouldn’t have been having this conversation”

“I would have never thought you’d see T Rowe Price or JP Morgan investing in mining start-ups. That’s kind of spectacular.

“Now we’ve just got to scale it up.

“The level of venture investing and scaling investing is still minimal. So we still have a lot of technology stranded in R&D or stunted small companies that just can’t scale their solution or their product.

“The volume of money is not there to enable it to move at the speed which needs to happen.

“But I think the current situation is promising because five years ago – even three – you and I wouldn’t have been having this conversation.”

Mark Frayman, former head of BHP Ventures and now managing partner of Orion Resource Partners’ new venture fund, has been encouraged by an environment in which certain technology can be commercialised and scaled faster than previously.

“It’s been a really exciting last few years, investing in this space, watching it evolve,” he says.

“I look at it now and the opportunity set, in terms of both capital being directed to this area, the flow of technologies coming to this area, and corporates and customers’ willingness to pay for some of these solutions, is the greatest I’ve seen it since I’ve been investing in the space.

“The investment opportunity now is particularly compelling and I think at a tipping point.”

Frayman believes an “influx of talent, attention and capital” into the niche mining-tech arena can “see some of the truly game-changing solutions start to emerge”.

“I think there is now a critical mass of VC funding in climate tech and I think that the investment universe is more than large enough [to support the mining sector sub-set].

“Climate tech or the old clean tech faced challenges given the sheer capital intensity of some of these activities. I think some of that risk has been dissipated by the availability of earlier and later stage funding.

“The big challenge is you look at these companies, and you have emerging companies and many of them are trying to sell solutions to old-world incumbents. Penetrating that sales-cycle is extremely difficult, particularly where you’ve got a really technical founding team that may not be strong in sales. In any case, the culture and decision making of these large incumbents makes it difficult.

“I think the greatest opportunity for a venture investor in this space [is] … those technologies that can grow supply, economically and efficiently”

“That can make it challenging for me as an investor to get venture-scale returns.

“Can it be done? Yes, because if you penetrate enough on even a few really large customers you can have exponential … growth in revenue.

“The way I think about it is we need to exponentially grow the supply – and that’s primary supply and also secondary supply – of these minerals to meet global decarbonisation targets.

“We need to do it, though, with a relatively low carbon footprint.

“So when I think about the greatest opportunity as a venture investor in this space [it’s] … those technologies that can grow supply, economically and efficiently, and do so with a low carbon footprint.”

Paul Lucey, mine electrification and technology principal at Australian engineering group Worley, says mining’s decarbonisation ambitions have created a framework for a shake-up in mining tech funding.

How positive that is for the broader mining tech space remains to be seen.

“In the top 20 mining commodities, companies have a target of 30% by either 2030 or 2035; some go even higher in terms of their [carbon] reduction targets,” Lucey posted recently on social media.

“What’s the cost of doing so?

“Well it’s around US$1.5 trillion. Mining needs to spend around 10% of its revenue for the next decade to achieve its targets.

“Oddly enough, it’s not impossible but it is unlikely.

“Whilst the cost of putting in renewables is expensive, it is happening and billions are being spent.”

Lucey told InvestMETS.com the “great Australian mining-tech buy-up” of recent years had seen a host of SME’s gobbled up for “incredible sums of money”.

“BluVein, Tritium and 3ME are the new tech stars on the block”

“So far it hasn’t stifled the R&D spend, but I suspect it will over the next few years as the new owners focus on integration and sweating the assets.

“The deal flow has been good, which is a good sign that products are valued and money has been spent developing the right products.

“There is a noticeable shift, though.

“A couple of years back automation, robotics and data science were the darlings of the METS community and miners alike, but the shift has been swift to green tech.

“You go and see a miner today … They don’t care about digital twins or autonomous trucks any more, they want electric everything.

“BluVein, Tritium and 3ME are the new tech stars on the block and money following that way seems more aggressive and bigger than what we saw in automation a decade ago.”

Troy McDonald, an experienced Australian mining industry executive who launched mining tech start-up Torqn last year, points to research showing average EBITDA multiple valuations for tech companies coming off 38% in the past 12 months as investment capital swung towards deeper green tech.

“There is quite a different risk profile attached to these investments,” he says.

“The economic returns are heavily influenced by government policy, particularly for carbon reduction and energy, and a number of the technologies are still emerging with several disruptive technologies on the horizon at demonstration scale.

“Five years ago you weren’t necessarily competing with clean energy, decarb and sustainability, which is now the flavour of the month, and you have to work a lot harder to raise funding. I also feel cornerstone investors are on a bit of a watching brief to see how quick investment in the energy transition and decarbonisation will progress and are reserving capital to move quickly.”

For the broader mining tech sector, McDonald still sees a “significant amount of private investment” available through high net-worths and family trusts, “though these are hard to find if you are not connected directly to them”.

“Innovation will accelerate when entrepreneurs and industry work together”

“I feel there is a stronger focus on the underlying economic case for investments now than there was a couple of years ago. Investors are now laser focussed on returns in balance with growth rather than growth at all costs,” he says.

McDonald says where mining companies traditionally relied on equipment manufacturers and suppliers to develop new technologies and deployed what was available, large miners are now “playing a more active role and investing in mining technologies that can shape the future of the industry”.

“My personal view is that innovation will accelerate when entrepreneurs and industry work together as the people who develop technologies are not necessarily the end users and have to make a number of assumptions along the way that may not optimise their products.

“I would love to see more partnerships between technology companies and mining companies in the early stages of development, though not be constrained by exclusivity or commercial arrangement that restricts it being available to the entire market.”

Another tech start-up that has gained strong early recognition and traction in the global mining market, Pitcrew AI, has been assessing seed-stage investment opportunities.

Founder and principal Tim Snell says notwithstanding the fact that term sheets, generally, have retreated from being founder friendly to being much more investor friendly over the past 6-9 months, the availability of venture capital has not really diminished.

“There are a lot more investors generally,” he says.

“There has been a global explosion in the number of venture investors.

“Many of them who entered the industry and invested at the cycle’s peak at the end of the low-interest rate phase are unlikely to see positive returns on funds and may not be raising funds from LPs in the future.

“The bigger question is how many fewer investors there will be in 3-5 years from now than there are today when firms are forced to realise losses rather than paper markdowns.

“METS investors make up a tiny percentage of the total investor pool. This percentage may increase as the returns from this segment may be relatively good compared to broader investments, as they likely started from a less frothy initial valuation and have tailwinds of a still booming resources sector.”

Snell says primary challenges for small firms such as his haven’t really shifted.

“Mining is a niche area. It is a market that is not well understood by most investors. The branding of the industry is still not great,” he says.

“The whole industry gets tarred with the thermal coal environmental impact brush.

“For venture capital investors the fundamental issue is that most mining applications fail to meet the venture-scale criteria. Some technologies in deep tech around exploration and extraction and processing might, but almost nothing in the mining support technology space meets the requirements for venture investors focused on potential power law companies.

“For Pitcrew, for example, there are around 54,000 mining trucks globally. But there are around four million new road-going heavy trucks produced annually. Our focus right now is on mining, as mining is feeling the pain of autonomous fleet rollout first, but to seek investment, our longer-term scope and vision need to be broader.”

Snell points to greater internal collaboration within mining on large-scale technology developments and the arrival of new investors (or investment sources) with long-term horizons as key steps that can help de-risk technology “to allow the milestone-based funding system to work”.

Other tailwinds may be building.

“Car manufacturers, in particular, are going to change the landscape”

Atrico’s Gustavino sees more money from the massive global manufacturing industry making its way into mining and metals supply chains.

“That’s a new impact in terms of driving change in the industry,” he says.

“The car manufacturers, in particular, are going to change the landscape. I think they’re going to have to change the landscape to deliver on their ESG obligations.

“To do that they’re going to have to put money into similar deals as the [Anglo American-backed] First Mode.

“We haven’t seen the impacts of that yet, but we’re going to see that over the next 2-3 years.”

Clareo’s Bryant points to another interesting “disruption force”: Saudi Arabia and its Vision 2030 plans to not only develop internal metal supply chains but also be a modern regional logistics hub for the industry through Africa and the Middle East. There is a lazy $30 billion or so on the table to kick things off.

“I think it’s a huge, looming, disruptive force for mining,” says Bryant, who has done some advisory work with relevant Saudi government agencies and recently observed a conference involving representatives from 60 countries in Africa, Central Asia and the Middle East.

“A pillar of their national strategy is to become a dominant force in the minerals-intensive energy shift from oil,” he says.

“They’ve said, we don’t believe mining the way it’s done now is the future. We want to totally revolutionise it.

“They call it modern mining. They want to change the business model.

“They may or may not pull it off, but they’ve got the ambition, and they’ve got all the strategy behind it, they’ve got a lot of investment behind it.”

*Ask us for a copy of our Mining Tech Investment Quarterly for a full rundown on recent mining tech deals, investors and trends. Also, for the latest insights into leading mining-tech company strategies and milestones. editorial@investmets.com

 

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