Can you discuss Appian’s recent announcements about exiting its positions at Harte Gold and Peak Rare Earths, and what they demonstrate about the company’s business model?

Harte Gold and Peak Rare Earths were the sixth and seventh investments exited by Appian from the 16 investments made thus far, with nine on the equity side and the remaining balance being credit and royalties. The successful exits of the majority of the equity investments demonstrate that Appian’s long-term capital and technical value-add approach is the correct investment strategy for mining. Fund 1 is now almost fully exited, and the company is beginning to monetize Fund 2, making it a logical time to start considering what Fund 3 should look like in terms of size and strategy.

Considering current metals prices, how challenging is it to find value in the right type of mining projects?

Appian believes that value must be considered relative to other options. The five largest mining companies are trading at roughly a 4x EV/EBITDA valuation compared to Tesla, which is trading at an 80x EV/EBITDA metric, despite all of them feeding the same end market. This represents a significant disconnect between where the retail and public institutional investor is putting their capital, and there is an opportunity to close that gap. Additionally, there is a disconnect between the capital required and the capital on offer, and that is where Appian sees an opening. The company invests in private assets rather than public entities, and this may involve a JV earn-in at the asset level with a corporate struggling to find financing. Appian is active at all points in the cycle, prepared to take advantage of the strength of its investment strategy and the opportunities it sees in metals and mining.

When mining projects are financed, the company supplying the capital is often viewed as getting the better end of the deal. How can credit solutions be structured so that all parties win?

Appian recognizes that the credit market is available to specialist lenders because there are not enough traditional financing solutions available. Mining is a capital-intensive sector that produces essential products for society, yet traditional banking does not want to invest because they cannot quantify the technical risk involved. The alternative would be highly dilutive equity capital raises, while debt financing uses your balance sheet to minimize dilution. Raising any kind of credit capital is net value accretive. Management teams must understand the cost of capital they are receiving, including arrangement fees, equity upside components, royalties, and streams, as well as the added value the lender can offer. Appian provides technical support across the full spectrum, from geostats to tailings, and has experts that will fly to the site for months on end to help solve problems. While Appian may be more expensive than some lenders, the company adds value to the capital provided.

What are some of the common mistakes management teams make in the mining sector?

Appian respects the entrepreneurial and exploration spirit of the mining sector, which is where teams excel. However, management teams are often overly optimistic about their assets, presenting projects to technical investors that are not realistic. Optimism is prevalent across the board, from geostats definition to resource estimation, capital cost estimation, mine plan design, plant design, and downstream tailings. Being realistic is crucial rather than trying to sell something that does not exist or cannot be done. Appian seeks realism and looks for ways to help teams fulfill the assets’ true potential.