Mining for Alpha: Featuring Kinterra Capital

Greg Dowling (00:07): Welcome to the FEG Insight Bridge. This is Greg Dowling, Head of Research and CIO at FEG. This show spans global markets and institutional investments through conversations with some of the world's leading investment, economic and philanthropic minds to provide insight on how institutional investors can survivor and even thrive in the world of markets and finance. Today, we are mining for alpha. In previous podcasts, we have focused on the impact of the AI boom on stocks and even discussed the hyperscaler's seemingly insatiable energy needs. On this episode of the Insight Bridge, we are getting back to basics, meaning basic minerals and materials that power everything from electric vehicles to data centers. We will discuss the global mining business with Kinterra, from high-level trends to the needs for private equity capital, how this is related to the clean energy revolution, the risks of mining, the impact of China, Trump and tariffs, so do not miss out on these nuggets of wisdom. Kamal and Cheryl, welcome to the FEG Insight Bridge. Would you mind introducing yourselves at Kinterra?

Cheryl Brandon (01:18): Well, first, thanks, Greg. It's great to be here. We really appreciate the invite. I'll kick it off. My name is Cheryl Brandon. I'm one of the Co-Managing Partners and Cofounders of Kinterra Capital. Been in private equity in the resource and mining-specific sector for the last 16 years and have been in asset management for 21 years. Kinterra Capital is a private equity fund that's focused on investing in and advancing and developing critical materials and associated infrastructure and stable jurisdictions for supply chains, which is a really important topic today. We're really excited to talk more about our strategy and give you some insight into the Kinterra opportunity. And I'll turn it over to Kamal for his background.

Kamal Toor (01:55): My name is Kamal Toor. Thanks so much for having us on the podcast. Hopefully your listeners find it useful and insightful, and happy to share our thoughts on our space. My background is very similar to Cheryl's. I'm one of the Cofounders of Kinterra Capital, a Managing Partner there, and prior to Kinterra, I also spent 16 years in the mining PE space. And today at Kinterra, we're less generalist and more focused on just the critical materials that are necessary both for industrialization as we move forward but also for the modern economy. And as Cheryl says, we focus specifically on finding those materials and investing those materials in stable jurisdictions.

Greg Dowling (02:31): First question, what are critical minerals?

Cheryl Brandon (02:33): Mm-hmm. That's a great question. So critical minerals are defined as minerals that are essential as well as there is typically a high risk of supply disruption associated with those assets. They're used for everything, whether it's industrialization, the modern economy, defense, and the specific critical materials that Kinterra targets is copper, nickel, magnetite and manganese, are the top four. There are 12 critical materials in total that we invest in. Again, it's really important to develop these materials as they get integrated into the supply chains for electric vehicles or battery energy storage systems, renewable power, the power grid, which we'll talk more about, but is really an important aspect of what's happening broadly with the electrification trends. There's a need to expand the power grid in the West. Essentially, it's upstream aspect of all supply chains. It's not grown or mined. It doesn't exist, and that's how we think about it.

Greg Dowling (03:28): Let's pull that string a little bit more. You hit on a few of the trends, but put some context around that kind of supply and demand. Yeah, we've always had industrial needs. Why now?

Kamal Toor (03:38): That's a really good question. I think there's a layering effect to that and an iterative effect to that. So first, on industrialization, to the point that Cheryl has made, is for sure a base-case foundational use of these critical materials. We've seen development of the U.S. and the West in the last 25 years. We've seen the industrialization and the modernization of China, and much of the commodity story has been the Chinese growth story. And in China today, Greg, the per-capita base metals consumption is at 40 kgs per person. When you look at the other emerging markets, X China, they're at two. So if we see the same trajectory that we've seen for China in places like India and Brazil and other places like that, you're going to get a pull on those critical materials, and I think that's one element of what's going on now. One, our global population is growing. Two, China continues to grow and emerge. And then following China, coming back to the layering and iteration, you have India and Brazil and others pushing behind that. And so that's the industrialization side of it. And the base-case use of these materials, I think what's really changing today is, in addition to those use cases, we are fundamentally changing aspects of our economy. The layering of the modern economy on top of existing industrial use cases is putting a more acute demand pressure on some of these minerals, and Cheryl has mentioned it well here, whether it's renewables, whether it's EVs, whether it's growing the grid. These iterative demand cases are real, and from our perspective, in terms of being an allocator and investing in this space, we really like the dynamic of an existing industrial use case but emerging new modern economy use cases for these materials.

Greg Dowling (05:25): And maybe I might ask you. You didn't mention AI, but I would think AI is a huge driver of some of the demand here.

Kamal Toor (05:31): You're absolutely right. AI for sure is a big narrative right now, a lot of commitments being made into growing AI. One way in which AI is the minerals and adds to the demand case, a lot of the AI requires data centers. We're seeing that in the U.S. in places like northern Virginia. The U.S. is a global leader in data centers, and data center capacity is only growing. By 2030, in the U.S., data centers will be pulling down 10 percent of all power from the U.S. power grid. The U.S. grid needs to grow. The Canadian grid needs to grow, and the same will be true for Europe. All of that grid growth requires, say, for example, additional copper, not to mention the additional copper that's required in the data centers themselves. So again, by 2030, it's expected that just the data center, so in-data-center copper demand, will go up by 500,000 tons a year, and that's separate and apart from all of the additional copper we need for grid growth, and maybe, Cheryl, you could touch on some of the battery energy storage systems that are going to be required also to maintain the grid and manage the grid as we get increasing power.

Cheryl Brandon (06:37): Battery energy storage systems are obviously required to manage the flow of the power with these renewable energy systems. We need a place to store and manage that flow, and I think it's a really important part. Today, it's not as big of a demand driver as it's expected to be in the future, but the growth prospects are significant.

Greg Dowling (06:55): That's fascinating, those facts, especially about the 10 percent of electrical needs just going to AI and data centers. And you mentioned both the data centers in the U.S. and Canada and the needs there. For listeners who can't pick up the accents, you're both Canadian. Now, what happens if Canada becomes the 51st state?

Cheryl Brandon (07:14): Well, we do not think that is going to happen.

Greg Dowling (07:17): I love it. So we talked a little bit about the why. Let's talk about why you. We'll start generally on why private equity. I think of a lot of these big global mining conglomerates like, you know, Glencore or Rio Tinto, BHP, Vale, all these. They're all out there, huge. Where does private equity come into this? I would think they would be pretty well-capitalized.

Cheryl Brandon (07:40): It's really interesting. We take a very targeted approach in the types of assets that we focus on. We are typically targeting development-stage projects that are going through that last stage to construction. And we don't often see a lot of competition from major mining companies in the areas that we compete. Where we do see competition, it tends to be from public markets. So if you have functioning public markets where there's a tremendous amount of capital flowing into these development-stage assets, that can make it challenging to compete. However, what we've seen over the last decade is the exact opposite. There's been a structural underinvestment in these projects, and so there's not a lot of financings that are available for these companies. A lot of generalist investors aren't investing, and we've seen this broadly where a lot of capital has gone passive from being active, and that's really impacted our sector. As we all know, passive capital doesn't invest in more of the small-cap companies, which is really what we're targeting to buy assets from. So as a result, these companies that we're targeting have very low cash balance, as they are looking for solutions. They are looking for alternative sources of financing. And the reason private equity fits well is because we can take a much longer-term approach. Our typical investment time horizon is somewhere between 3 to 4 years. That matches that time horizon, and that duration matches well with the duration that's required to unlock the value with the underlying assets. And then in addition to that, at Kinterra, we have a full team of technical experts, so we have mining engineers, metallurgists, geologists, permitting experts, chemical engineers. And what we do is we leverage that in-house technical team at Kinterra to not only underwriter and select the best assets in the sector. But then also once we own the assets, we typically target owning 100 percent or having a controlled orientation. We will leverage that internal technical team to then unlock value with the assets. I think that the private equity structure is actually the best structure in the area that we focus in, which is, again, the development-stage projects where there is a lack of capital, there is a need for technical expertise and there is a need to match the duration of that financing with the underlying technical programs that are ongoing to get to the point of exit.

Greg Dowling (09:38): That's interesting, right, because you made the comment about public versus private, public being much more producing, just different risk profile and probably different return profile, as well.

Kamal Toor (09:48): I think that's exactly right, Greg. When you go back, and you take a look at all of the data, comparing public strategies to private strategies in the space, what you generally find is that the public strategies don't have the same return profile, and the other thing that you find is that volatility in the public strategies is much higher. On a risk-adjusted basis, the private strategy generally looks better if the return is better and the volatility is lower. What I would posit to you is the reason I think the public strategies are difficult is because when you invest in the critical materials or you have a thesis to invest in the critical materials, and you pick a public team to backer or portfolio of public companies, you are still subject to the decision making of the public company board, and you're still subject to the decision making of the public company management team. And at times, I would suggest this happens more often than not, the decision making of the public company board and the management team isn't necessarily aligned with the institutional private investor. To echo Cheryl's point, what you get on the private side, more of an opportunity to vet and diligence whether as an investor you are aligned with your manager. For a number of reasons, we think our strategy is very much aligned with our LPs, and we can go into how we invest and the details of the strategy. But I think that's really the real difference. With a public company management team, again, the data just shows the returns aren't as high, and it's more volatile. But there's an inherent misalignment there that you can bridge for on the private side.

Greg Dowling (11:18): Yeah. Maybe on a generic level, if you could describe how you invest and how you add value.

Kamal Toor (11:22): In terms of our approach to investment, so first off, informed by both mine and Cheryl's 15 or 16 years of doing this and our learnings along the way, and second of all, informed by our analysis of private markets' deal flow and returns. We've looked at thousands of deals across numerous studies and over the years have gleaned what generates and drives returns in private markets and what doesn't work. There's a lot of data out there. There's skews in the data, as well. But we've really synthesized this to five factors that inform our strategy. So the first one is watching our entry price. The second one is identifying opportunities where there is real opportunities to add value. there has to be some sort of value creation premise, and we can talk to you a little bit about what it would be in our business. The third is building teams. A failure to build teams erodes returns. We operate within a flywheel. We call it the Kinterra flywheel. It's effectively just the relationships we've built over the last 15 or 16 years in our industry. That flywheel helps us source. It helps us build teams to create the value we need to create. The other thing we try to keep in mind is move fast to exit. Time will erode returns. And the final one for us is insulate against macro and market. What you'll find in a lot of the data is you can never fully insulate from macro and market. But managers who just don't find some way to insulate themselves find an erosion effect on their returns, and the way we insulate from macro and market is we try to buy really, really scarce assets in stable jurisdictions that are impacted the least when the market may turn against us and come back first when the market comes back in toward us. That's what informs our strategy, both our experience and the data from other product deals. Maybe, Cheryl, you can talk a little bit about how we then execute on the strategy.

Cheryl Brandon (13:13): Mm-hmm. Yeah. Value creation is a really important aspect of what I think private equity generally focuses on. For us, we split it up into two buckets, so there's transactional value creation, and there's technical value creation. This is the value creation during the hold period. Both technical and transactional value creation within Kinterra is trying to accomplish one of two things. One is increase the asset value, which we define in our industry as the net asset value. Second is, increase the valuation multiple. We're buying development-stage projects. The goal is to buy them sub-0.2 times price-to-nav and get a re-rate to 0.6 times price-to-nav as we derisk those assets through to construction. The technical part of what we do is really focused on -- it could be land consolidation. It could be restructuring royalties to improve the underlying value of the projects. We could be doing offtake contracts with downstream partners or project financing to derisk the financing landscape. On the technical side, it's really doing optimization, so mining engineering optimization. It's processing the trade-off studies, optimizing cap ex and op ex and looking at design parameters, doing individual programs to improve resources. It's all very technical, but we have, again, a massive technical team internally at Kinterra who's fantastic, and they execute on all of these strategies to drive value. Our goal is simply to get a fantastic entry price, come in at a low point, identify the high-quality assets with our team, do the heavy lift on all of the transactional and technical work internally and then ultimately leverage our network in the sector to monetize those projects.

Greg Dowling (14:43): And maybe the ability to buy cheap assets is sort of predicated on, I think of mining at least historically being a very boom-bust business. Is that true, or is that dynamic changing as you have these megatrends that are out there?

Kamal Toor (14:57): It's interesting. So ability to buy at the evaluations that we want to buy at, I think is driven by two or three factors. One is a market factor that's applicable to everybody in the industry, and that is the valuations of development-stage assets have been negatively impacted over the last four or five years, adversely impacted. We're seeing a significant decrease and pullback in those valuation multiples, and there's a number of reasons for that, as that's because the assets can't attract capital. The companies that own these assets generally tend to be public companies that don't have liquidity anymore. Liquidity has dropped, yeah, something like 78 percent since COVID. Overall the capital that these companies used to attract has gone from being active to passive. And when the capital goes passive, they can invest in some of the companies that are smaller companies that own these assets. That's true for anybody who is looking at the space. It's a market trend. What I think further differentiates our ability to buy at the valuations we're looking to buy at is distress. In our transactions, and this is true in our last fund, every asset we buy, Greg, has some sort of distress catalyst, whether it's an out-and-out bankruptcy because of balance sheet distress or it's operational distress or the shareholders may be looking to liquidate after a long holding period. So there is that element of distress that I think helps us by, and I think the way we take advantage of that opportunity is, over the last 16 or 17 years, we've built a transactional tool set that's nimble. It's nuanced. When things get distressed and complicated, we do well from a transactional perspective. If there's a simple deal to do, we probably don't have a competitive advantage. But when things are complicated and an asset needs to be pulled out of a complicated situation through a transaction that may not be the most straightforward transaction, that's where we're going to do well.

Greg Dowling (16:49): Mining, and there's different types of mining, there is sort of big strip, underground. There's stripping, kind of open-pit. But it often takes years. That's the problem, and you tend to come in kind of late-stage in the development. But you're spending lots and lots of money and not getting production for years, so things can happen in that period of time, right?

Cheryl Brandon (17:07): A lot of the capital that we're investing in is going into the permitting work, so we do baseline study collections to understand the baseline. What does the asset look like pre-construction, and how will it be impacted from construction and operation, which feeds into our permitting work? We have a full permitting team across the U.S., Canada and Australia who have been doing this for a very long time, and so that part of it does take time. The technical work takes time. I think one thing I'll point to is, when we buy a project, there has typically been 10-plus years of development work that's already been done.

Greg Dowling (17:39): Wow.

Cheryl Brandon (17:40): Exactly, right? So starting from scratch is not what we do. We do not do exploration. We're not in the green fields business. We are in that very last stage of development to take the asset and all of the data that's been produced, all of the work that's been complete prior to our involvement, leverage all of that work and then do that final bit to get it to the point where it's construction-read, fully permitted and all the technical work has been done. Typically we're looking at allocations post-acquisition depending on the projects somewhere in the range of $20 million to $70 million of additional work that needs to be done. But to put it in context, most of the assets that we are acquiring have $100 million plus invested. Our most recent transaction that we did had over $1 billion of capital invested. We bought two projects for $128 million, and again, that goes to focusing on opportunities where there's distress, targeting a low entry price, which is a really important aspect of our strategy, and then doing that final bit of work during our value creation hold period to unlock value and achieve our three times' MOIC.

Greg Dowling (18:39): Maybe going a little bit into basics of what you get out from mining, I think people have this wrong perception, and maybe I did, too, at one point in time where if you're doing a copper mine, that you're getting these big bars of copper, and they just -- you get them, where it's not, right? It's like a dirt. What do you get when you mine?

Kamal Toor (18:58): So, excellent question. Generally most mines produce something called concentrate. Whether it's nickel concentrate or copper concentrate, it's just concentrated forms of that metal in dirt form. Usually what happens is that the mine will then ship that bag of concentrate to a smelter somewhere, in the case of copper, and the smelter is actually the piece of infrastructure that would produce the finished rod of copper or just outside the smelter would produce the rod of copper that you're thinking about. Now, the reason I think it's such an interesting question, Greg, is that ultimately from the investor perspective, folks look at the copper price on the screen and say, "Well, that's the price of the copper. I'm invested in a copper mine. There should be a relationship there." When you're investing in a copper mine, you're investing in the copper concentrate. So what you have to be super mindful of: the relationship between the upstream mine and the downstream smelter and the processing capacity. Now, the very interesting thing that we see on the copper side, and we own seven projects in our last fund, three of them are copper projects in the United States. So we control a lot of copper. We control 13.1 billion pounds of copper in the U.S.. We are the second largest holder of development-stage copper assets, public or private, in the U.S. in our Kinterra Fund One. The reason we really like that position is exactly because of the nuance that you're highlighting, the difference between copper concentrate, copper dirt and the smelters. What's happened over the last decade or so is smelter capacity, the stuff that produces the refined copper, has been built up at a relatively quick rate in China, in India. Now, it's moving to Saudi Arabia. Of course, there are smelters. We have smelters in Arizona, in Utah and Quebec in North America, but the smelters don't have enough feed. So the smelters were built to be responsive to all of the upcoming demand in places like China and India. The smelter capacity is built, but the smelters are empty. These are pieces of infrastructure that cost billions of dollars to build or have large reclamation liabilities. Nobody wants to shut them. The dynamic we see in the market right now is the smelters are empty. They need dirt. There is just not enough dirt in the market right now. And the way that's reflected in the economics is it used to be that you took your bag of concentrate that you produced at a mine, you sent it to the smelter, and the smelter charged you $80 a ton to process it. That processing fee is called TCRCs, treatment refining charges. Today, those are negative. The smelters are paying you to send them the material. That means you can negotiate better terms. It means you can get the smelter owners to invest in your projects at exceptionally high valuations. Those are the dynamics we try to take advantage of, but again, super interesting question because as a manager in the space, regardless of the commodity that you're purchasing, you have to be attuned to the downstream dynamics because that's your opportunity to further derisk your asset and create value.

Greg Dowling (21:59): Speaking of risk, I have been thinking -- You mentioned North America, Nevada, places like that. But I also think of mining being these far-flung emerging markets that may be less stable. Do you invest in those types of countries?

Cheryl Brandon (22:14): So we don't, so our focus is on primarily Canada, the U.S., Australia, some part of Western Europe as well as some parts of South America. I think the important thing to note is, when you think about the mining sector broadly, the critical materials and the infrastructure associated with those critical materials to integrate them down stream, there's four key risks that we're really assessing. So one is the technical merits of the project. Will it be a mine one day? Technically. The second is the commodity price. There's obviously volatility in the underlying commodity price. There's financing risks, so these projects are capital-intensive assets, so they need to be financed at production. And then there's jurisdictional risk. We have no ability to control jurisdictional risk, and so we don't enter countries where we don't feel comfortable that we won't wake up the next day and not own the mine or have a royalty rate applied to the project that makes it uneconomic. The other three risks, this is our job, is to focus on, how do we mitigate those risks? So the technical risk is, again, the technical teams and having 16-year history in the business, really understanding the projects and putting the right teams in place once we own those assets. We feel like we do a very good job of mitigating those risks and properly understanding them. On the commodity price risk, when we underwrite our assets, we don't underwrite our projects with the assumption that the commodity prices are going to go up. Our view is we look at long-term consensus, which is generally in line within a range of where we are today. Even though we see these tailwinds from a supply-demand fundamentals perspective on the commodities we are investing in, we assume long-term consensus commodity prices. In addition to that, we also, in our best efforts, try and structure off-take contracts downstream and integrate our assets upstream into the downstream. On the financing front, which is the third risk, we look to export credit agencies to provide project financing. That landscape has completely changed. This goes to the dynamic of friendshoring where there is a focus on creating secure supply chains. And so export credit agencies, part of the OECD arrangement, are providing project financing for projects in the jurisdictions that we invest in on favorable terms. So we feel technical commodity financing risks, we can manage. To the best of our ability, with the skill sets we have and the experience we have, the networks we have and the teams we've built, jurisdictional risk, we cannot, and so we tend to focus in stable jurisdictions in our current fund. All of our investments are in Canada, the U.S. and Australia.

Greg Dowling (24:30): You mentioned friendshoring, and, Kamal, you talked about the smelter capacity, and a lot of it is in China. We actually sometimes mine, ship it to China. They process it, and then we buy it back or bring it back in a different form. As the world splits among kind of East-West lines, is that an issue? Do we have enough capacity in friendly countries to process all of our needs?

Kamal Toor (24:58): So I would say, from our perspective, Greg, that's the opportunity because what you've described there is the realities of the market today. Extraction is done outside of China. It's done inside of China, as well, but the mining is done outside of China. Depending on the commodity that you're thinking about, 65 to 90 percent of the processing capacity is done in China today. And the risk that the governments are increasingly attuned to, and the current administration is no different, I was reviewing some of their key points going into the new term, and taking more control of mineral extraction, the critical minerals and processing, is right near the top of the list. But it's not just the U.S. government. Other folks, and not just the government, industries becoming very attuned to this, as well, because the real risk is we send stuff there, and they decide not to send it back, and we see that in Germanium. We've seen that recently in Gallium. Refined graphite now is on our review list of whether it should be exported out of China, and you cannot secure supply chains with that sort of concentration risk in your supply chain. And so that is the reality. That's what we're trying to solve for. I think there's a lot of stakeholders that are trying to solve for that. My personal view is I don't think that's a public market solve. Building these supply chains and the processing, it's complicated. It's not necessarily best understood by the public capital markets. Our take on it is the solve probably lies in some sort of partnership between industry, government and private capital, and that's where we see the real opportunity, is friendshoring and repatriating those pieces of processing infrastructure. And the more we can do it with support from our downstream industry partners, but also support from governments who want to see the infrastructure repatriated, the better.

Greg Dowling (26:47): Can I ask a further question on friendshoring? We were joking about this earlier, about Canada being the 51^st state. What you're definitely seeing the new administration push back on, foreign competitors but also pushing on what we would consider our friends, our allies, our neighbors. I consider you friends and neighbors.

Kamal Toor (27:07): The feeling is mutual, Greg. Thank you.

Greg Dowling (27:09): Is that a risk? Will there be tariffs put on Canada, and when you go back and forth between U.S. and Canada, prices get put out of place?

Kamal Toor (27:19): Whenever we think about the tariffs, we always try to separate the rhetoric from what will ultimately be the policy. Even going into sort of the recent inauguration, there was a lot of talk about, day one, there is going to be tariffs, and of course, we're recording this after the inauguration. That didn't materialize and didn't come to fruition. I think undoubtedly whether it's from a U.S. perspective, a Western Europe perspective, Canadian perspective, we are living in a more protectionist society. That is for sure there. But in terms of what actually is subject to tariffs, which commodities are subject to tariffs, which chemicals are subject to tariffs, I think we'll just take a wait-and-see approach on what the actual policy says as opposed to where their rhetoric is. And what I would posit to you is that ultimately whether you're in Canada, Western Europe and the U.S., we need these materials to build key supply chains. I think some thought and prudence will be given and deference will be given to the fact that it may not be in anybody's best interest to put exceptionally high tariffs on the very stuff you need to build secure supply chains in the U.S..

Greg Dowling (28:28): What if we slapped tariffs on hockey? I think that would break you guys.

Kamal Toor (28:33): I think that might be a tough one. I don't know what the NHL's ratings are right now in the U.S., but if there was a tariff on top of that, that might be tough.

Greg Dowling (28:42): Talking about other risks, and we talked about friendshoring and all of that, but just China, right? If you think about a lot of commodities, there's a global price, okay? There's a global price for oil. There's a global price for copper, and they may be listed at different exchanges, but they all impact each other, right? Is there a risk that slowing China, just from overhang from their multi-decade infrastructure boom, slowing demographics, that a lot of these hopes and dreams for commodity demand, commodity pricing goes away? Is that a possibility?

Cheryl Brandon (29:19): Yeah, so it's an interesting question. I think if you look at China's consumption of materials generally, critical materials included, it has been significant, obviously, stating the obvious. One of the interesting statistics recently that we came across on copper specifically is a significant portion of copper demand in China is actually going into building up their power grid. So China has done a fantastic job of getting consumers to shift their preferences to driving EVs. I think they have 50 percent adoption today, and China represents a significant portion of EV demand globally. That really, in parallel with their focus on building up the renewable space, as well, is driving the demand for electricity, which is driving the need to increase their power grid. So the portion of consumption of copper is actually increased significantly to build out that grid, and I think that perspective, we can see that that need is there, and we can see that although we have seen a slowdown in China, it's not having as big of an impact as you would have anticipated. When you layer that on top of what's happening broadly with the modern economy, and again, the modern economy is all-encompassing, it goes back to the AI, data centers, draw on power, renewables, best systems, EVs. And in the developed world, that demand profile is significantly increasing. So broadly, when you look at kind of everything that's happening on the demand front, and then you couple that with a lack of supply coming online, the fundamentals for commodity price support for the materials that we invest in is still there.

Kamal Toor (30:49): I agree with Cheryl, and I think just unpacking that a little bit more, Greg, what I hear in your question is on waning China demand, and I agree. It's just the nature of Chinese consumption has just moved away from property development to infrastructure. The interesting thing in your question is this. Ultimately, it's a demand-side question, right? What if something happens and your demand side is impacted? The way we think about that as a manager is to contemporaneously also focus on the supply-side story. So for me, the risk that you're highlighting, going back to the five factors that we think about when we're making private investments, is you're introducing a market shock into the equation, and one of our key tenets is to insulate yourself as much as you can from market and macro. And the way we do that is, for example, with copper, on the demand side, I agree with Cheryl that in addition to China, you have the modern economy story. You have the other emerging markets coming online. But if you assume that there was a market shock on the demand side, contemporaneously, if you're looking at the supply side of copper, there are structural supply issues on the copper side with new mines now coming online, disruptions in Latin America in Chile and Peru that continuously impact copper supply. And so when we think about investing and we think about insulating from macro and market shocks, we're always paying attention to the demand side, but then we're looking at the supply side to see if there's something structurally that challenges these supply for a project. And again, supply and demand are just two items you look at. We're trying to consider as many factors as we possibly can that drive asset scarcity.

Greg Dowling (32:25): I love that. The great point about supply, and, Cheryl, also, great point on demand, that, okay, maybe copper used to go into building an apartment building --

Cheryl Brandon (32:37): Mm-hmm.

Greg Dowling (32:37): -- in a second or third-tier city. That copper is still needed to build out data centers or their EV grid. And so it just may change how -- where the demand is.

Cheryl Brandon (32:46): Exactly.

Greg Dowling (32:47): All right. Paradox question for you, this is a tough one. Is this kind of an ESG strategy? Because here is the thing. Energy transition needs all these critical minerals. But to do so, you're digging a giant hole. So how should investors think about this?

Cheryl Brandon (33:03): It's very interesting, and again, we've been in this business now for 16 years in private equity focused on mining assets. And if we go back to the beginning of our time, we were always very focused on the environment, and we were always very focused on having a social license to operate. In the segment that we participate in and invest in in the mining space, in development, you absolutely need to be focused on the environment. You need to be focused on what's happening in the communities, and you have to have great governance practices. So that has been consistent since the very beginning for us. The ESG narrative, obviously in more recent years, has developed in a different way, and I will say that has not changed our practices. We've always adhered to really, really strong ESG practices, again, pre-ESG narrative. This is just what we do to drive value on our assets.

Greg Dowling (33:51): It's at risk, too, right? If you have an environmental accident, there's a cost.

Cheryl Brandon (33:55): Now, we're not operating assets, so we tend not to have those risks associated with our projects. Our risks are more, do we have community support? Can we get the social license to operate? We deal with Aboriginal communities in the United States. We deal with First Nations in Canada and traditional owners in Australia. We want the support of the communities. We see them as long-term partners and stakeholders, and that is a path to getting our permits on our projects. Getting permits on our projects is a major derisking event, and it also drives value. And so when we think about what is our approach on ESG, it's really about driving value. It's about engaging with communities. It's obviously focused on the environment, which has always been a really important aspect of what we do. The other part of your question is interesting. Of course, right, we have to dig big holes or put underground infrastructure in place to extract materials and process. The difference with the mining sector and the critical materials that are being extracted is, once they're extracted, they can be recycled, and we can create a circular economy, and we cannot do that with fossil fuels. I think that is the big difference. Of course, there is an impact up front. That is true, and you have to do what you can to manage and mitigate those risks. That is our job in designing these projects to be constructed. But beyond that, once the material is out of the ground, copper is a great example, 25 percent of the copper market today and the supply side actually comes from copper scrap. Batteries, all of the materials, lithium, manganese, cobalt, nickel can be fully recycled 100 percent out of the battery and reused again in the next battery.

Greg Dowling (35:23): And steel is like that, as well, right? You can --

Cheryl Brandon (35:24): Exactly.

Greg Dowling (35:25): Yeah.

Cheryl Brandon (35:25): Exactly, so I think, broadly speaking, some folks will identify this as it's, you're still destroying the earth, and of course, extraction element does exist. But doing it in a sustainable way, a responsible way, focusing on the communities in which we engage with that are all stakeholders. And then broadly speaking, this is, again, the narrative around the circular economy and the recycling aspect of it.

Kamal Toor (35:47): I agree with Cheryl, Greg. I think the only other two things I would offer on that is, from an investor perspective, should investors think about it? Our experience has been disparate. I think some folks in our investor base, at least, and the folks we dialog with, they view the Kinterra strategy very much as an exposure to critical minerals for energy security purposes, and that's the opportunity that they want us to go out and deploy into. And for other folks, it's for sure energy security, and then there's an ESG component on top of that. And I'll just echo what Cheryl says. I think the recycling part of it is very key and a key part of the narrative. But beyond that, it comes back to our jurisdictions, as well. We're developing projects in Canada, the U.S., Australia, Western Europe. We're subject to pretty stringent guidelines, and it's probably one of the reasons why we haven't gone to some of the jurisdictions that our peers have. First, again, as Cheryl has previously mentioned, we don't know how to underwrite the risk in those jurisdictions. And second, some of the human rights and sustainability standards are questionable there.

Greg Dowling (36:49): To kind of sum that up, you are environmentally aware. You're going to manage the environmental risks. Bu you yourselves, to be very fair, are now holding yourselves out as this. Some people may classify you one way or another, but regardless, you feel some responsibility because it's the right economic thing to do, to make sure that these projects are maintained.

Cheryl Brandon (37:07): Exactly.

Greg Dowling: It's a tough question. I wanted to make sure that you're not greenwashing or anything like that. But I get the next question a lot, is, where do you put it? Is it a good thing, or is it a bad thing? And it's probably a little bit of both like anything, right? There's an impact on the environment whatever you do, right?

Cheryl Brandon (37:22): Mm-hmm.

Greg Dowling (37:23): So you have to properly manage it. And I know you're not in production, but, Cheryl, you said that there isn't as much of an environmental risk. Are you indemnified? If you buy into a project, and for some reason didn't realize that there were some issues happening, are you on the hook for that? Is that a potential risk?

Kamal Toor (37:38): It's an excellent question, Greg, and any time you buy a site except under very, very limited exemptions, you generally take on the liabilities that are at the site once you're the operator. And again, there are some limited exemptions to that, but that's an in-the-main statement. Look, we've been buying these assets and investing in these development-stage assets for now 16, 17 years. We have a comprehensive environmental DD process. We get into the deep dives of not only sort of the types of environmental issues you would expect and kind of soil quality and things of that nature, but beyond that, First Nations issues, archaeological issues, flora, fauna, endangered species issues. We have a full team that gets into those issues, and so we generally go into our projects pretty aware through a comprehensive due diligence process on what we're buying. And thankfully, in the last 16, 17 years, we haven't been surprised by any environmental issues after the fact. Now, I do think that that is a much more simple process on a relative basis than if you're buying the producing assets. And again, another reason aside from moderating price volatility and things of that nature that we prefer development-stage assets as opposed to the producing stuff.

Greg Dowling (38:50): I always think this is fascinating, learning about an industry and kind of where stuff comes from. To my point about maybe thinking that copper bars just kind of popped out of the ground, and if there are other listeners out there that are a little bit like me that want to learn more about this, are there any good resources or books that you would recommend?

Cheryl Brandon (39:06): It's a great question. I think that the way that we think about resources to look at these types of opportunities, we've had a conversation recently with one of our investors, and they said, "I went to ChatGPT, and I asked the question, 'Why invest in critical materials?' and 'How do I invest in critical materials?" I think that kind of starting from those places, YouTube, ChatGPT, just as a baseline to get the foundation, I think is really helpful just to kind of formulate views on where the opportunities exist and then how to go about deploying.

Kamal Toor (39:37): What I would share with you is that I always find that you're only going to learn so much through reading a book and doing research on your own. I think that's table stakes. I think for sure folks should get research, and ChatGPT certainly makes it easier today. But I think what I would share if somebody is trying to get up the curve is there is a lot of seasoned, experienced institutional investors in the LP community in the U.S. that for years and years have invested in the space, have lessons learned from the space. We certainly have lessons learned from the space. My advice would be, after you do some initial baseline reading, start talking to people. Go out. Get to the conferences. There's the PDAC Conference up in Toronto that happens annually, other global conferences on critical materials. There's many, many conferences on that. I would start talking to some of the other folks in your LP network on the real asset side who have exposure to the space, and I think there's a wealth of knowledge there. We certainly have come across those folks in the last 10 or 15 years. And really, really importantly, I think we're going into gen two of mining private equity, kind of leaving gen one behind. And I think that the really interesting thing is I think those folks that lived gen one will tell you everything they're looking for in a manager for gen two through some of the lessons learned from gen one.

Greg Dowling (41:00): Those are great suggestions. We're kind of nearing the end. I usually ask some fun facts. I'm going to give you some options. A personal fun fact, and it has to be interesting. Sometimes you get facts that are really not even facts, and they're not fun, so it has to be a fun fact about yourself, mining or, if you just have a really fun story about being in the mining industry that you want to share, either of you can start.

Cheryl Brandon (41:24): Oh, okay. I'll kick it off. I have a fact.

Greg Dowling (41:27): Okay.

Cheryl Brandon (41:27): It's a good one.

Greg Dowling (41:27): All right. All right.

Cheryl Brandon (41:28): It's a good one, and it's an important one. It's a meaningful one. It relates to today. It's fun in the sense that the outcome was really positive. But it's a fact about me I'll share personally. Today is actually 16-year anniversary of being a living liver donor.

Greg Dowling (41:42): Oh, wow. Okay.

Cheryl Brandon (41:42): Yeah. I was selected to be a living liver donor for my 2-year-old niece who is exceptionally healthy, first year at university, studying to be a doctor. I'm super proud of her, and today is our 16-year anniversary.

Greg Dowling (41:55): Oh, my gosh. That's incredible, and that's an awfully high bar.

Kamal Toor (41:59): No, there's -- I can't follow that. I'm going to keep it super light. My fact is not so fun, but it is a fact, and, Cheryl, I'm refusing to follow you ever again. My fact about me is I am a big -- and anybody who knows me knows this. I am a big supporter of Liverpool Football Club.

Greg Dowling (42:18): All right. "Never Walk Alone," is that the --

Kamal Toor (42:20): "You'll Never Walk Alone," well-done, Greg. That is my fun fact. I actually usually get out to a game once a season with my son when -- Their stadium is called Anfield. I'm going to bore you guys about this because you've asked now.

Greg Dowling (42:32): I like the EPL.

Kamal Toor (42:33): Their stadium is called Anfield. It's this magical place. I actually have a stone that I bought for a couple hundred bucks that has my name on it, my 8-year-old's name on it and "You'll Never Walk Alone." I don't know if anybody follows English football, but Liverpool is very much an underdog city, a gritty city, and they all kind of assemble around this anthem of "You'll Never Walk Alone," to persevere and punch above their weight. And the reason I brought that up is that's kind of our culture at Kinterra.

Greg Dowling (43:00): Oh, wow. Huh? Bringing it full-circle.

Kamal Toor (43:01): Bringing it full-circle.

Greg Dowling (43:02): I'm a Tottenham fan.

Kamal Toor (43:04): Oh, no.

Greg Dowling (43:05): Our motto should be maybe "You may never win again." That might be --

Kamal Toor (43:09): They're getting close to the relegation.

Greg Dowling (43:11): Oh, boy.

Kamal Toor (43:11): I just looked at that recently, but yeah. That's kind of what we bring to the Kinterra side, is focusing on perseverance and focusing on doing things, big things, as a collective team and so a little pull from the LFC culture.

Greg Dowling (43:24): Any fun mining story we could end with? Any crazy --

Kamal Toor (43:26): Okay, I've got --

Greg Dowling (43:27): All right.

Kamal Toor (43:27): I've got to share something with you.

Greg Dowling (43:28): All right. All right.

Kamal Toor (43:29): You pulled it out of us. This goes back a few years. We had a prospective LP come to our office in Toronto, and we won't name. They were ex-North America, ex-Europe. Let's just put it that way. Did a couple-hour meeting in our offices. Our offices are general office tower, as you might imagine, in the downtown financial core. Two-hour meeting is going well. There's a whole team there. We talked about deal pipeline, all the usual stuff you would cover, origination, value creation, deal pipeline, monetization. Wrap up the 2 hours, and we're like, "Okay, guys. Do you want some lunch?" They're like, "No, no, no. We actually just want to see the mine."

Greg Dowling (44:04): It's on floor five, right?

Kamal Toor (44:06): That's it. They said to us, "Is the mine just not downstairs under the building?"

Greg Dowling (44:11): Oh, my gosh.

Kamal Toor (44:12): And so we had to tell them that our mines are actually in pretty remote places. That's what I could come up with. I don't know, Cheryl, if you have any others.

Cheryl Brandon (44:18): I don't have any others. That was probably a pretty good one.

Greg Dowling (44:20): What about someone that gets a mining strategy instead of a mining strategy? Would that be --

Cheryl Brandon (44:25): We haven't had that.

Greg Dowling (44:25): Never had that?

Cheryl Brandon (44:25): No, no.

Greg Dowling (44:26): All right. Well, hey, thank you both. This has been fascinating. I've really enjoyed it, and I know you said it was your very first podcast. You're both very good, so don't make it your last.

Cheryl Brandon (44:36): Thank you, Greg. We appreciate the invite. This has been fantastic, and hopefully we can do another one at some point.

Greg Dowling (44:41): Yeah.

Kamal Toor (44:41): Thanks so much for having us.

Greg Dowling (44:43): If you are interested in more information on FEG, check out our website at www.feg.com, and don't forget to subscribe to our communications so you don't miss the next episode. Please keep in mind that this information is intended to be a general education that needs to be framed within the unique risk and return objectives of each client. Therefore, nobody should consider these to be FEG recommendations. This podcast was prepared by FEG. Neither the information nor any opinion expressed in this podcast constitutes an offer or an invitation to make an offer to buy or sell any securities. The views and opinions expressed by guest speakers are solely their own and do not necessarily represent the views or opinions of their firm or of FEG.