You might want to follow in their footsteps… but maybe do something a bit different.

One good option is equity research, where you can combine your economic skills with finance and the capital markets.

Our reader today came to the same conclusion as he navigated his way into equity research in Brazil – from a family of economists:

Out of the Central Bank and into the Investment Bank: Getting In

Q: How did you first become interested in equity research?

A: I was born in “Economist Land:” My immediate family (plus cousins and others) all worked in economics or finance in some way.

One of them had worked for the IMF and the Brazilian Central Bank, and another family member had owned a small broker-dealer company in Brazil in the 1990s.

I saw how the high inflation and the currency fluctuations made the capital markets a high-risk, high-reward place, and I knew I wanted to get into the industry from a young age.

Q: So, you majored in finance or economics, and then…

A: No! I did an undergraduate major in engineering, completed a Master’s in Finance degree, and worked in various fields before entering equity research: Risk management and the back office, a family office, and FICC-related sales & trading.

After a few years in those roles, I applied for MBA programs, won admission to a top business school in the U.S., and joined the sell-side equity research team at a large domestic bank in Brazil.

I gained experience there and in a corporate finance rotational role, and now I’m looking to get into buy-side equity research.

Q: Good luck!

What was the sell-side equity research recruiting process like?

A: It’s far less structured than it is in the U.S.

Banks still hire students out of undergrad and incentivize them to stay for the long term, but the entire process happens more slowly, and firms don’t necessarily make you go through a specific set of steps.

People who network their way in tend to come from related roles, such as sales & trading, corporate finance, and investment banking. But it gets very difficult to network your way in after more than a few years of full-time work experience.

My story of winning an offer during an MBA program is quite rare.

Interviewers focus heavily on your soft skills and your ability to fit in with the team. As in other regions, you need a demonstrated interest in the markets, and you must be able to discuss recent trends.

The ER industry has become more competitive because there are so many Brazilians with MBAs from top schools, so the CFA is also becoming more important for setting yourself apart.

The technical questions and case studies in interviews are the same as those anywhere else: Expect 3-statement modeling tests, accounting/valuation questions, and stock pitches.

On the Job at a Large Brazilian Bank

Q: Can you tell us about the equity research industry in Brazil?

A: Since Brazil has the largest economy and capital markets in Latin America, it has a well-developed equity research industry as well.

A mix of international bulge bracket banks, “In-Between-a-Banks,” and domestic Brazilian banks cover companies here.

Middle market and boutique firms (whether regional or “elite boutique“) don’t do much yet (as of 2017 – 2018).

Pretty much all the international BB banks cover companies here: JPM, MS, Citi, CS, GS, BAML, and DB.

Of the “In-Between-a-Banks,” the European and Japanese ones have the strongest presence – firms like Santander, BNP Paribas, Mizuho, and Sumitomo all have solid coverage teams.

Three major domestic banks control most of the investment banking market: Itaú, Bradesco, and BTG Pactual.

They all have a strong presence in equity research as well, which you’ll see if you look at any of the Institutional Investor rankings.

That might change in the future because of the corruption scandal(s); the political climate could give smaller domestic banks and international firms an opening.

Q: Thanks for that summary.

What are the most common industries, and does any of the analysis differ from what you do in other regions?

A: Brazil has a diversified economy, at least compared with the smaller countries in Latin America, so research teams cover a mix of industries.

Some of the biggest industries by market cap are commodities (Oil & Gas and Metals & Mining), financials (Commercial Banks), and consumer staples (Food & Beverage), so many of the companies we cover are in those sectors.

Financial modeling is financial modeling, so you’ll still see quarterly and annual projections of the three statements, valuations using multiples and DCF analysis, and industry data to support initiating coverage reports.

The main differences include:

• Brazilian GAAP vs. IFRS – These have been converging over the years, but if you look at older reports and filings, there will be discrepancies. Some of the differences relate to subsidiary accounting, dividends, and exchange rates and borrowing costs.
• Lower Liquidity and Market Capitalization – Since there is far less liquidity, and since firms are much smaller than they are in the U.S., you have to dig into companies in a lot more detail to understand them.

It’s much harder to skim through a company’s financial statements and build a model just based on the documents; you have to get to know management and speak with sources on the ground.

• Currency Fluctuations – Since the BRL/USD exchange rate has been volatile and since the Real has fallen so much against the Dollar, sometimes research analysts will present financial projections in both BRL and USD side-by-side.

If you want to see a few sample reports for companies and industries, check out these examples:

• Brazil Retail & Consumer Goods Research – Santander
• Brazil Macro & Market Research – Generali Investments
• LatAm Universe Coverage Book – Santander

NOTE: We found all these reports with simple Google searches. Many firms make reports and updates publicly available if you search for the right keywords.

Q: Thanks for explaining that.

Previous equity research associate interviewees have said they spent more time speaking with investors and management teams than they did on financial modeling.

What was your experience?

A: I agree with those previous comments; you do a lot of modeling for the initiating coverage reports, but not quite as much after that.

In my role, I spent more time getting to know the management teams and putting them in touch with institutional investors.

I didn’t speak with the investors as much as the salespeople did, but we still interacted a fair amount because sales always wanted our views on various issues.

You split your time more evenly between company management and investors in buy-side equity research since you have to understand what everyone else in the market is doing.

Q: What are the compensation and long-term prospects of this role? Do most research analysts stay there for a long time?

A: Post-tax, post-living-expense equity research compensation in Brazil is about 20% lower than in New York.

Individual income taxes are about 15% lower in Brazil, companies pay for 100% of your healthcare, and the cost of living in São Paulo is ~30% lower than in NYC.

However, salaries and bonuses are also lower, so you can expect to earn about 20% less after taxes and living expenses.

Regarding exit opportunities, most sell-side research analysts either stay in the field or move into investor relations at companies they have covered.

A few may go into private equity or mutual funds, which is possible because recruiting is less structured than in NY and London.

But traditional ER exit opportunities are more limited because there are relatively few hedge funds here.

Q: Thanks for explaining that.

You mentioned in the beginning that you’re looking to move into buy-side research now. What’s your long-term plan?

A: Buy-side research was my plan all along.

I like buy-side research because it combines analytical/introspective work and communications with investors and management.

In most roles, you tend to do one or the other (investment banking skews heavily toward analytical work at the junior levels), so it’s rare to find that balance.

Also, the compensation and working hours are quite reasonable if you find a good team.

Finally, I like the importance of communication skills in research.

You publish reports and speak with different parties all the time, and, coming from a technical background, I’ve always wanted to do more of that.

Q: Great. Thanks for your time!

A: My pleasure.

The post Equity Research in Brazil: The Best Way to Apply Economics to Real Life? appeared first on Mergers & Inquisitions.

This one is the interview that I could never quite lock down – until now.

We’ve managed to cover almost every emerging and frontier market, but my attempts at featuring Brazil kept falling through.

But when I sent out an announcement asking for interviews last year, I received over 200 responses, with quite a few from readers in Brazil.

The stories varied, but I’ve focused on one of the most unusual ones here – from a reader who broke into the industry from a non-finance background and then moved into corporate development:

Origin Stories: Engineering to Import/Export Business to Investment Banking

Q: You have quite a story. Can you walk us through the basics?

A: Sure. I studied engineering at university and started an import/export business after graduating. I didn’t know anything about M&A or investment banking at the time.

The bureaucracy in Brazil is difficult to deal with, and an economic downturn made it tough to run my business, so I decided to pursue a Master’s degree at a business school in South Brazil.

I became interested in M&A there, and I began applying to all the banks I could find in both São Paulo and Rio de Janeiro.

I had no experience in financial analysis and no internships, so I received only one response from the dozens of emails I sent out.

It was from a regional boutique bank in Rio that had around 20 people and focused on middle-market deals (For companies with ~R$ 30 million to ~R$ 500 million in revenue).

I made it through interviews there, won an offer, stayed for a few years, and then attempted to move into private equity, but found that it was incredibly difficult coming from a boutique.

So, I moved to a larger bank instead (similar to an “elite boutique,” but with a LatAm focus).

I stayed there for a few years, worked on larger and more complex deals, and then decided to move to the U.S. and take a corporate development role at a finance company there.

Q: Thanks for sharing all that. Your story is quite unusual, but how do students usually get into investment banking in Brazil?

A: It’s not that much different from the U.S.; banks want students who have completed prior finance internships, have good grades, and have attended the best universities.

They also want people who have networked a lot, done their research, and understand the trade-offs of working in IB, such as the fact that you won’t have much of a social life.

It’s common for engineers to pursue careers in finance, but they have a tough challenge proving their people skills and knowledge of finance.

One difference is that in Brazil, and Latin America in general, you have to pick your major right when you apply to university, and then stick with it for 4-5 years.

Many students from schools such as Insper and Fundação Getúlio Vargas (FGV) study business management and aim for IB roles.

Those two are more focused on careers in IB/PE, but other strong schools include the University of São Paulo (USP), Fundação Dom Cabral (FDC), and, in Rio, Pontifical Catholic University (PUC), Ibmec, Universidade Federal do Rio Grande do Sul (UFRGS), and COPPEAD at the MBA level.

Students at some of those schools can complete internships starting in their first years, but Insper students can complete internships only in their final years.

Finally, you absolutely must know Portuguese to work here.

If you’re from another country, it might be possible to study here, learn the language, and win an offer, but banks heavily favor local candidates.

Q: Thanks for explaining that. You recruited at a wide variety of banks, so what should readers expect in the interview process?

A: I’ll start with the bulge brackets: They give candidates a test similar to the GMAT, and if you pass, you’ll interview with HR, then Analysts and Associates, and then the VPs, EDs, and MDs, who make the final decision.

There are no huge differences in interviews, but one point is that teams are very small.

At some bulge brackets, the entire team is less than 25 people, and they hire only 2-3 interns per semester. Most interns receive full-time offers, so there is not much recruiting for full-time Analysts.

Elite boutiques are even newer, but firms like Moelis and Rothschild do have a presence; historically, Rothschild has done well in the M&A league tables as well.

The process is similar there, but they normally don’t have local HR staff, and they’re more concerned with “fit” since the teams are even smaller.

Interviews at regional boutiques are less formal, and you might just go through a few rounds of interviews where you discuss your experience and why you want to do IB.

If you’re interviewing with a larger regional bank, and you have work experience, you could get a case study where you have to make a recommendation on the best buyer or seller in an M&A deal as well.

Deals, Deals, and More Deals: Comparing the Banks in Brazil

Q: Thanks for that run-down. You’ve mentioned a few different types of banks in the country, but how do they compare in terms of deals and industries?

A: The domestic banks, such as BTG Pactual, Itaú BBA, and Bradesco, tend to do more deals, but the international bulge bracket banks tend to advise on larger deals.

You can see that if you look at any league table for the country.

Banks like BTG and Itaú have strong corporate banks and win a lot of deals because of that; firms like MS and GS don’t even have corporate banking arms here.

Many companies in Brazil are family-owned, and the owners are more familiar with the domestic banks, so that also gives those firms an advantage.

However, when the deal is bigger or more complex, the company will almost always hire one Brazilian bank and one international bank.

The bulge bracket banks and domestic banks tend to focus on M&A deals, while the elite boutiques are stronger in Restructuring, which is happening a lot with the current economy.

There are no true “industry-specific boutiques,” but bankers at boutiques often have clients in a few sectors and bring the clients with them when they move over from bigger banks.

Almost the entire market is in São Paulo. There are 3-4 well-known boutiques in Rio, but the biggest banks operate in SP.

Q: You also worked with smaller companies and then with slightly bigger companies.

What are the main differences?

A: One difference is that many of these companies in Brazil are not audited, so a big part of your job as an Analyst or Associate is finding and presenting historical financial information.

It’s tough to go public with less than R$ 300 million in revenue, so many of the middle-market companies you advise are private.

At regional boutiques, ~99% of deals are sell-side M&A transactions, so you’ll spend a lot of time preparing lists of potential buyers.

In one deal I worked on, the structure was quite complex since the company was owned 50/50 by two Partners, and one Partner was leaving.

The other Partner had to raise funds to do a “leveraged buyout” of the other one, and we set up several earn-outs for the deal.

Those structures are common since so many companies are owned by a few individuals rather than diverse groups of shareholders.

Q: Were there any differences in the teams or work styles?

A: At the regional boutique, I worked on a maximum of 5-6 deals at once, and two senior bankers and two Analysts were involved in each deal.

I don’t think that’s a great structure; it’s better for only 1-2 people to be deeply involved with each deal.

The larger bank operated more like a bulge bracket, and I sometimes worked on up to 8-9 deals at once.

I was more senior by then, so I had junior Analysts below me working on models and presentations. I spent more time sourcing deals, speaking with potential investors and acquirers, and working on term sheets and LOIs.

Also, the deals were more diverse, and we did plenty of capital-raising and debt-related transactions as well.

I worked around 55-60 hours per week at the regional boutique, and closer to 70 hours per week at the larger firm.

I assume that the hours at bulge brackets and elite boutiques are longer, though I’m not certain of that.

Exit Opportunities: The Promised Land of Private Equity?

Q: Thanks for that comparison.

You mentioned that it was very difficult to move into PE coming from a boutique firm. What do most bankers there do?

A: Private equity is probably the most common exit opportunity, but more so if you’re at a bulge bracket or elite boutique.

The hedge fund industry is not well-developed, and sometimes they pay less than banks, so bankers tend to stay in IB or move into PE.

Q: And what’s the process for getting into PE like?

A: Recruiters have far less power than in the U.S. You can just contact firms directly and send your CV when you hear about opportunities.

Recommendations always help, and they’ll almost always ask for them in the final stages of interviews, but you don’t necessarily need one to start interviewing.

Domestic PE funds sometimes hire candidates directly out of university, but they also pay less than international funds and have worse hours; international funds tend to recruit bankers with 2-3 years of experience.

Interviews are fairly standard, but case studies are sometimes more detailed because the recruiting process isn’t a 48-hour frenzied rush as it is in New York.

As a result, paper LBOs are less common than 3-hour tests where you read through 10+ pages about a company, build a full model, and then defend your recommendation.

You’ll speak with everyone at the firm, present your case study, and then speak with the most senior Partners at the end.

Q: You mentioned the benefits of international funds over domestic ones, but how active are the international funds?

A: There are quite a few funds, but their track record has been mixed, especially with the downturn in the economy.

The most active international funds are Advent, Carlyle, General Atlantic, Warburg Pincus, and H.I.G.

Apax, KKR, and TPG also have local offices, but are not very active and did not perform well in their deals; some might even close their offices.

CVC has entered the market more recently, and Blackstone makes real estate investments and has a stake in Patria, one of the leading domestic funds.

The most active Brazilian funds are Patria, BTG Pactual, GP Investments, and Tarpon, but some of them have also had performance issues and might have trouble raising funds in the future.

Q: I see. And are there any differences in the industries and deal types?

A: The industries are diversified, but retail, healthcare, TMT, and consumer see quite a few deals.

The biggest difference is that classic LBOs are rare because interest rates are very high (~14% currently), and lenders prefer short-term loans.

Many deals use no leverage, and when they do use leverage, it’s a maximum of 3x Net Debt / EBITDA.

A survey from a few years ago even found that 44% of private equity deals used no leverage, 44% used up to 25% leverage, and only 12% of deals used between 25% and 50% leverage.

As in private equity elsewhere, you’ll spend more time researching industries and companies and less time rushing around making last-minute presentations.

Q: You decided to leave the IB/PE world and move into corporate development.

That doesn’t seem to be common in Brazil, so what motivated you to do that?

A: I am legally allowed to work in the U.S., and I had always wanted to live there, so I decided to quit my job, move to the U.S., and look for work when I arrived.

Originally, my bank was going to help me transfer, but they decided against it, so I made the move myself.

I won some interest from private equity funds, but once again, it was difficult to get in without bulge bracket or elite boutique experience.

I gained more traction for corporate development roles, and I got along very well with the VP of Corporate Development at the firm where I accepted my offer.

The company is in the financial services sector, with a focus on the Caribbean and Latin America, so it was also a great fit for my background.

The way I looked at it, corporate development careers are similar to private equity, but you don’t need such specific experience to get in.

The interview process was very casual (no case studies or modeling tests), and it felt like the right fit for me.

Q: Thanks for sharing that, and thanks for your time!

A: My pleasure.

The post Investment Banking in Brazil appeared first on Mergers & Inquisitions.

Many people viewed the sector as a short, poorly dressed cousin of oil & gas, but concentrated in places like Canada and Australia.

The two industries have a lot in common, but in the current cycle, different forces are driving mining – such as the demand created by renewable energy, electric vehicles (EVs), and the promised “energy transition.”

The good news is that if you work in mining IB, and your clients produce the cobalt, copper, or lithium that ends up in EV batteries, you can feel good about saving the world.

The bad news is that your clients might also be exploiting underpaid workers and child labor in the Democratic Republic of Congo, which may slightly offset “saving the world.”

But let’s forget about the children temporarily and focus on the verticals, the drivers, deal examples, and the exit opportunities if you escape from the underground mines:

What Is Metals & Mining Investment Banking?

Metals & Mining Investment Banking Definition: In metals & mining investment banking, professionals advise companies that find, produce, and distribute base metals, bulk commodities, and precious metals on debt and equity issuances and mergers and acquisitions.

The concepts of upstream (“find”) and midstream/downstream (“produce and distribute”) still exist, as they do in oil & gas.

For example, an iron ore miner is “upstream” since it extracts the raw materials, and the steel producers that turn that ore into steel and distribute it to customers are downstream.

However, mining companies are usually classified based on their focus metal.

For example, Capital IQ splits up the sector by metal type (aluminum, diversified, copper, gold, precious metals, silver, and steel).

I think this is a bit too complicated, so this article will use these 3 categories:

1. Base Metals and Bulk Commodities – Anything used for energy (coal), as a precursor to other metals (iron ore), or to produce electronics, batteries, and other products (copper, cobalt, lithium, aluminum, etc.) goes here.
2. Precious Metals – Gold is the biggest component here, but metals like silver, palladium, platinum, diamond, and emerald also go in this category. Some of these may be used for non-industrial purposes, such as investment or jewelry, but others, such as silver and platinum, have many practical uses in cars and electronics.
3. Diversified Miners – These companies have a wide global portfolio of mines, and they extract, produce, and distribute just about every metal in the two categories above.

The metals & mining team’s classification varies based on the bank.

Sometimes, it’s in the broad “Natural Resources” group, but it could also be in Industrials, Renewables, or even Power & Utilities.

And in regions where it’s especially important, such as Canada and Australia, metals & mining is often a separate team at banks.

Recruitment: Tunneling Your Way into Metals & Mining Investment Banking

Metals & mining is highly specialized, so you have an advantage if you have a background in geology, geophysics, or mining.

But it’s not necessarily required, and plenty of undergrads join these groups via internships without detailed knowledge of the engineering side.

If you have an engineering background, you might get hired for your ability to read and interpret technical analyses such as feasibility reports and help bankers incorporate them into financial model assumptions.

Aside from that, banks look for the same criteria as always: a high GPA, a good university or business school, previous internships, and networking and interview preparation.

You don’t need to be a technical mining expert to pass your interviews, as all the standard topics will still come up, but you should know the following:

• The main categories of metals and the factors that drive their prices, production, and supply (see below).
• A recent mining deal, especially if the bank you’re interviewing with advised on it.
• Valuation, such as the different multiples used for mining companies and the NAV model in place of the DCF (see below).

What Do You Do as an Analyst or Associate in the Group?

If you’re advising mostly large companies like BHP or Rio Tinto, expect lots of debt deals, occasional M&A mega-deals, and many smaller asset-level deals.

Here’s an example from BHP’s deal activity:

If you’re at a smaller bank that advises growth-stage companies, expect more equity deals, private placements, and sell-side M&A transactions.

Here’s an example from Olympic Steel’s deal activity:

If you’re wondering about the modeling and technical experience, most differences relate to the company type rather than the specific metal.

In other words, a gold miner and a copper miner are slightly different, but they are much closer than a pure-play miner and a pure-play producer.

In practice, you’ll usually work with various companies (miners, producers, vertically integrated, royalty-based, etc.) in your focus area.

Metals & Mining Trends and Drivers

The most important sector drivers include:

• Overall Economic Growth – When the economy grows more quickly, companies need more raw materials for cars, TVs, infrastructure, and everything else in modern life. The sources of growth also matter; emerging markets’ infrastructure spending drove up metal consumption for a long time, but now there’s a rising demand in developed markets due to EVs and renewable energy.
• Commodity Prices – Higher metal prices help upstream mining firms but hurt downstream firms that purchase raw material inputs from other companies. And vertically integrated firms are in the middle since they experience both higher prices and higher costs. Oil, gas, and electricity prices also factor in because most metals are extremely energy-intensive to produce.
• Production and Reserves – All mining companies deplete their resources as they extract more from the ground, so they’re constantly racing to replace them. But new mines take a very long time to come online – years or even decades. As a result, supply and demand shocks tend to make a much greater short-term impact on prices than growth from new projects.
• Capacity and Spreads – Production companies always have a certain amount of “capacity” in their plants and factories, and they earn revenue based on the percentage capacity used to produce finished products and their realized prices. Profits are based on the spreads between the cost of the raw materials (iron ore) and the finished products (steel).
• Exploration and Development (Capital Expenditures) – How much are companies spending to develop new mines and expand existing ones? CapEx spending affects everything in metals, but because of the long lead time required to launch new mines, it’s a greatly delayed effect. On the producer side, you can see how much they spend to build new plants, factories, and processing centers.
• Taxes, (Geo)Politics, and Regulations – Many mining projects are in regions with unstable governments, wars, and other problems. These governments are often eager to charge foreign companies a premium to access their resources, and the rules and taxes around extraction can change at any time.

You might be wondering if “inflation” should be on this list.

It is a driver for precious metals, especially gold, but it’s less of a demand driver for metals with mostly industrial purposes.

Metals & Mining Overview by Vertical

Here’s the list:

Base Metals and Bulk Commodities

Representative Large-Cap Public Companies: ArcelorMittal (Luxembourg), Jiangxi Copper Company (China), POSCO Holdings (South Korea), Nippon Steel (Japan), Baoshan Iron & Steel (China), thyssenkrupp (Germany), Vale (Brazil), Aluminum Corporation of China, Nucor (U.S.), JFE (Japan), Tata Steel (India), Hindalco (India), Hunan Valin Steel (China), Cleveland-Cliffs (U.S.), Freeport-McMoRan (U.S.), and Steel Dynamics (U.S.).

Note that most of these firms are steel producers, not iron ore miners, so they’re closer to “normal companies.”

Also, note that some of these companies, such as Freeport-McMoRan, also mine precious metals, but they’re classified as “copper” since most of their revenue comes from copper.

Finally, some significant companies are missing from this list because they’re state-owned – the best example is Codelco in Chile, the world’s first or second-biggest copper producer.

With those disclaimers out of the way, let’s assume that you’re analyzing a copper mining company. You’ll think about issues such as:

• Production and Consumption: Chile is the world’s largest producer, while China is the largest consumer, which means that shocks in one can greatly impact prices and production.
• Costs: These vary based on the region and metal; for example, some metals are more energy-intensive (aluminum), while others are more labor-intensive. Shipping costs may also be a major factor for some metals, especially those with lower “value to weight” ratios, such as coal and iron ore.
• Key Uses: Since copper is the best conductor of electricity among non-precious metals, it’s widely used in machinery, appliances, batteries, and even electrical wiring for entire buildings.

All mining companies care about their production and reserves and always want to convince investors that they can grow them over time.

Here’s an example from the Capstone / Mantos Copper presentation below:

Companies often go into detail on individual mines, with estimates for their useful lives, annual production, and “all-in sustaining costs,” or AISC.

AISC is usually defined as the cash costs to operate the mine plus corporate G&A, reclamation costs, exploration/study costs, and the required development and CapEx.

Companies often provide long-term production forecasts in their investor presentations, so you don’t necessarily need to make many judgment calls in your models:

Gold and Precious Metals

Representative Large-Cap Public Companies: Zijin Mining (China), Newmont (U.S.), Barrick Gold (Canada), Anglo American Platinum (South Africa), Sibanye Stillwater (South Africa), Zhongjin Gold (China), Shandong Humon Smelting (China), Impala Platinum (South Africa), Sino-Platinum Metals (China), Agnico Eagle Mines (U.S.), and Industrias Peñoles (Mexico).

The big difference here is that the end markets differ – but many precious metals still have industrial uses beyond wealth storage and jewelry (e.g., silver and platinum).

Precious metals miners are driven by many of the same factors as the base metals ones above: reserves, production, all-in sustaining costs (AISC), and the lives of individual mines:

But there are some key differences:

1. Reserves and Extraction – Since metals like gold and diamond are rare, companies usually present their reserves in tonnes and estimate a “grade” they expect to find (in grams or ounces per tonne). On the other hand, gold also requires little to no refining once it is extracted, so at least part of the process is “easier” than the one for base metals such as copper.
2. Global Pricing and Market Dynamics – The value-to-weight ratio of precious metals is high, so the freight costs are insignificant, and they can be shipped anywhere in the world. As a result, they operate in more of a global market, with fewer regional disparities. By contrast, metals like coal, iron ore, and steel are much more localized, and copper and aluminum are in between.
3. Valuation – Since many people perceive gold as a stable, irreplaceable store of value, gold miners often trade at higher multiples than base metal miners (see the examples below).

Precious metals miners earn much less revenue than companies that focus on copper or steel, but the sector gets a disproportionate share of M&A activity because of the factors above.

Diversified Metals & Miners

Representative Large-Cap Public Companies: Glencore (Switzerland), BHP (Australia), Rio Tinto (U.K.), Anglo-American (U.K.), CMOC (China), Vedanta (India), Norilsk Nickel (Russia), Grupo México, Mitsubishi Materials (Japan), Teck Resources (Canada), Baiyin Nonferrous Group (China), Saudi Arabian Mining Company, and Sumitomo Metal Mining (Japan).

These companies are so large and diverse that their performance reflects mostly sector-wide trends rather than regional or metal-specific issues.

This entire vertical is highly concentrated because of the huge barriers to entry and economies of scale at this level.

Companies tend to present their results in a high-level way, rarely going down to the level of individual mines:

So, you tend to create equally high-level forecasts for these firms unless one is a client company sharing much more detailed information with you.

You focus on the mix of different metals, production levels, and long-term prices and use them to project revenue, expenses, and cash flow.

For example, many of these companies have been expecting stronger demand for lithium, nickel, and cobalt to power renewables, so you might tweak your long-term production assumptions based on that:

Metals & Mining Accounting, Valuation, and Financial Modeling

Let’s start with the easy part: there are virtually no differences for “production-only” companies.

One example is Steel Dynamics, which we feature in our Core Financial Modeling course:

To value it, we build a standard DCF based on production volumes, CapEx to drive capacity, and assumed steel prices:

The valuation multiples are also standard (TEV / Revenue, TEV / EBITDA, and P / E).

Most of the differences emerge on the mining side.

As with oil & gas, I’d split the differences into three categories:

1. Lingo and Terminology – You need to know about different reserve types and resources, mine types (underground vs. open pit), and the extraction and refinement processes used for different metals. Standards like NI 43-101 in Canada or JORC in Australia are also important.
2. Metrics and Multiples – You can use standard multiples, such as TEV / EBITDA, to value mining companies, but you’ll also see a few new ones and some resource-specific metrics.
3. New or Tweaked Valuation Methodologies – As in the E&P segment of oil & gas, there’s also a Net Asset Value (NAV) model for mining companies, and it’s set up similarly (essentially, it’s a long-term DCF with no Terminal Value).

Starting with the terminology, mining companies split their minerals into “Reserves” and “Resources.”

Reserves have a higher probability of recovery, and they’re divided into the “Proved” and “Probable” categories.

Resources are split into Measured, Indicated, and Inferred, with the first two often grouped as “M&I Resources” (I like this name!).

You can see an example of a company’s Reserves and Resources here:

You might build a NAV model based on Reserves if you want to be more conservative or include the Resources if you want to be more speculative (but discounted by some percentage).

The NAV model follows the same steps as the one in oil & gas but uses different inputs:

1. Split the company into “developed mines” and “undeveloped/potential mines.”
2. Assume that the existing mines produce over their lifespans (usually 10-20 years, and sometimes more) until they become economically unviable.
3. Assume the development of the new mines, which might take years or decades, and estimate the CapEx required for each one.
4. Forecast the production levels for each new mine until it becomes economically unviable. There’s usually a ramp-up of a few years in the beginning, a peak, and an eventual decline.
5. Build a price deck with different long-term metal prices. You might assume differences from current levels in the near term, but you’ll set these to long-term assumed averages after the first few years.
6. CapEx will depend on each mine’s reserves and geography, while OpEx and the cash costs to operate the mine will usually be based on a per-unit metric, such as $ per ounce produced for gold miners.
7. Aggregate the cash flows from all the mines, add corporate overhead, and use these to estimate the company’s cash flows over the next few decades. Again, there is no Terminal Value since you forecast production until the mines stop producing at viable levels.
8. The Discount Rate is often fixed at some pre-determined level, such as 5% for gold or 8-10% for copper. You might also add a premium for emerging/frontier markets and mines in the middle of war zones and pirate camps.

I don’t have a great visual of a mining NAV model, but here’s a good example of long-term cash flow projections from TD’s presentation to Turquoise Hill Resources:

And yes, you read that correctly: they forecast cash flow until the year 2100.

In terms of metrics and multiples, this slide from the Gold Fields / Yamana Gold presentation sums it up well:

These multiples are high because gold miners often trade at premium valuations; P / NAV multiples are often below 1x for other miners.

This P / NAV multiple is based on the Net Asset Value methodology output above, but it’s often simplified for use in valuation multiples.

You can still use the TEV / EBITDA multiple, but it’s more appropriate for the diversified miners since their output fluctuates less.

Another common multiple is TEV / Resources or TEV / Reserves, which values a mining company based on its “potential capacity.”

Some banks even combine these metrics and use them to illustrate companies’ relative valuations, as in this example from BMO for Turquoise Hill:

You’ll often see references to metrics like “Au Eq.” and “Cu Eq.”; these stand for “Gold Equivalent” and “Copper Equivalent.”

If a company owns/mines several metals but is dominant in one, you can convert the dollar values of their other metals into this dominant metal to create an “equivalent” metric.

For example, if they have 1,000 ounces of gold and 10,000 pounds of copper, and prices are currently $2,000 per ounce for gold and $4.00 per pound for copper, the “Gold Equivalent” resources are 1,000 + 10,000 * $4.00 / $2,000 = 1,020 ounces.

Example Valuations, Pitch Books, Fairness Opinions, and Investor Presentations

There are many examples here, so I will split these into Base Metals and Bulk Commodities vs. Precious Metals:

Base Metals and Bulk Commodities

• Rio Tinto / Turquoise Hill – Acquisition (CS, Rothschild, RBC, BMO, TD, MS)
  • Deal Process Update (BMO)
  • Deal Process Update and Valuation (TD)
  • Fairness Opinions (starts on page 38)
• Capstone Mining / Mantos Copper – Acquisition (Scotia, CIBC, and GenCap)
  • Investor Presentation
  • Fairness Opinions (go to page 322)
• Westmoreland – Restructuring (Centerview)
  • 13-Week Cash Flow Projections
• Cosan / Vale – Minority Stake (Citi, JPM, Bradesco, and Itaú)
  • Investor Presentation
• Cleveland-Cliffs / AK Steel – Acquisition (Moelis, BofA, CS, GS):
  • Investor Presentation
  • Fairness Opinions – Moelis | GS

Precious Metals

• Gold Fields / Yamana Gold – Acquisition (JPM, BofA, CIBC, Canaccord, Scotia, Stifel)
  • Investor Presentation
• Kinross / Great Bear – Acquisition (BMO, CIBC, GenCap, Canaccord, Trinity Advisors)
  • Investor Presentation
  • Fairness Opinions (page 204)
• Newcrest / Pretium Resources – Acquisition (Lazard, RBC, BMO, Citi)
  • Investor Presentation
  • Fairness Opinions (page 204)
• Impala Platinum / Royal Bafokeng – Acquisition (JPM, Macquarie, Ned Bank, Standard Bank, PSG, BofA, QuestCo)
  • Investor Presentation
• South32 / Sierra Gorda – Minority Stake (UBS and RBC)
  • Investor Presentation

Metals & Mining Investment Banking League Tables: The Top Firms

If you look at the investment banking league tables, you’ll see the usual large banks at or near the top: GS, MS, JPM, BofA, Citi, etc.

But you’ll also see many Canadian banks there, including BMO, which is usually viewed as the top metals and mining group in all banking (but is also a complete sweatshop).

The other large Canadian banks (CIBC, TD, Scotiabank, and RBC) also make a strong showing in most league tables.

The elite boutiques do not have a huge presence in mining, but you’ll sometimes see Rothschild or Perella Weinberg on the list.

Macquarie also shows up occasionally, likely due to its HQ in Australia and all the mining deals there.

A few middle market and regional boutique names in the space include Canaccord Genuity, Maxit Capital, Cormark, Haywood Securities, and Eight Capital.

Some of these, like Canaccord, do more than just mining but happen to have a strong presence in the sector.

Exit Opportunities

Let’s start with the bad news: As with any other specialized group, metals & mining investment banking will tend to pigeonhole you.

Also, few private equity firms are dedicated to the sector because commodity prices are volatile, and mining companies are levered bets on commodity prices.

Even if you work with standard spread-based companies, such as steel manufacturers, headhunters will rarely take the time to understand your full experience.

OK, now to the good news: This situation is starting to change.

More private equity firms are springing up to invest in the sector, driven by the “energy transition” and the importance of mining for renewables.

Some private equity mega-funds do occasional mining deals; outside of them, several smaller firms do equity and credit deals in the sector.

A few names include Appian Capital, Resource Land Holdings, Greenstone Resources, Proterra, Denham, Tembo, Sun Valley, Resource Capital, Ibaeria, Waterton Global Resource Management, Orion Resource Partners, EMR Capital, and Sentient Equity.

There are also quite a few hedge funds in the space, and many global macro funds and commodity funds will be interested in candidates with mining backgrounds.

(You’d still be better off working in sales & trading if you want to enter one of these, but a mining IB background gives you a higher chance than other bankers.)

The most common exit opportunity for mining bankers is corporate development since you can apply all your modeling, technical, and deal skills directly to acquisitive companies.

Another option is to aim for PE firms that work in broader areas that have some overlap with mining, such as in industrials or power/utilities.

For example, KPS Capital technically operates in the “manufacturing” space, but it does deals involving basic materials, including metals and mining companies.

So, the exit opportunities aren’t great, but they’re a bit better than in oil & gas, and they are improving due to the ESG/renewables/EV craze.

For Further Reading and Learning

No, we don’t have a metals & mining financial modeling course.

I’ve considered it before, but it’s a niche area, and the economics never made sense.

There’s an outside chance we might release a short version as a $97 course, but I can’t estimate a time frame.

For other resources, I recommend:

• News: Mining Feeds | com | Financial Times
• Research: EY | PwC | KPMG | Deloitte | McKinsey
• Market Data: London Metals Exchange (LME)
• Books: Fisher Investments on Materials | The Mining Valuation Handbook

Is Metals & Mining Investment Banking for You?

Despite the positive recent trends, I still wouldn’t recommend metals & mining over sectors like technology, TMT, healthcare, or consumer retail for most people.

If you really like mining and want to specialize in it, sure, go ahead.

Of the “specialized” sectors within IB (real estate, FIG, and oil & gas), metals & mining probably has the most growth potential through ~2030.

But cyclicality and specialization are major issues.

Yes, mining is hot right now due to renewables and EVs, but I wouldn’t bet money that this will last “forever.”

Traditionally, these shorter commodity cycles tend to run for 5-10 years – which matters if you enter the industry or get promoted at the wrong time.

Finally, you have more exit options than bankers in other specialized groups, but you still have worse overall access than bankers in the generalist groups.

But at least you’ll get to make the world a better place – if you forget about those child laborers in the Congo.

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