Case Study #1 – Robert Friedland, serially successful mining entrepreneur

August 11, 2019 | Blog

Track Record of Success

Robert Friedland is a billionaire mining magnate, who just so happens to also be a mentor of the late Steve Jobs (Co-founder of Apple). The pair worked on Robert Friedland’s uncle’s apple orchard together, which coincidentally happens to be the name of the company Jobs famously started.

Friedland is a serially successful mining entrepreneur, who is responsible for more than 10 major mining discoveries, multiple billion dollar mining exits and over USD10bn in capital raised. He has been described as the most successful mining financier ever.

Robert Friedland’s latest mining project, Clean Teq, involves using technology to bring to life a USD20bn mine, which will satisfy latent-demand for a rare mineral required to revolutionise the Aviation, Aerospace and Transport industries.

Many say that Friedland has the ability to see around corners. He sees trends and problems coming before anyone else and sets the wheels in motion to solve these problems decades in advance, for which he has a track record of  creating value for shareholders time and time again.

How does a billionaire mining magnate make sure that the next business he builds solves a problem that serves a market need?

Robert Friedland is (at the time of writing in 2019) the Co-Chairman of Clean Teq Holdings Limited (Clean Teq). Clean Teq is listed on the Australian Stock Exchange (ASX:CLQ) and Toronto Stock Exchange US (TSE: CLQ)). It is a mining company that uses proprietary technology to extract the next generation of minerals from their world-class Nickel, Cobalt and Scandium mine, called Sunrise.

However, Clean Teq did not start out as a technology driven mining company. Originally the company used its Clean-iX® technology to clean air, water and minerals. In 2012, the company successfully proved that the technology could extract a rare mineral called Scandium from the ground in an economically viable way, which up until this point, could not be mined economically.

In the early 90’s Friedland acquired a mine called Syerston, located in New South Wales in Australia, which contained the world’s largest and highest grade deposit of Scandium (approximately 20,000 tonnes). Scandium is one of the world’s most rare and expensive minerals (Sc on the periodic table), which has never been mined in any meaningful quantity because it is not economically viable to mine using traditional methods (there is approximately 10-15 tonnes per annum mined globally at AUD5,000 per kilo).

Scandium has proven application in the Aviation, Aerospace and Transport, however, the current supply cannot satisfy the latent-demand, which means it cannot be adopted on mass-scale in these industries.

Adding 1% Scandium to Aluminium (99% Aluminium and 1% Scandium, called Scandium Aluminum alloy) makes Aluminium twice as strong and half the weight.

Further, as it stands, aluminium cannot be welded, instead it has to be riveted (for example, when a plane is put together the panels must be riveted together, which further increases weight due to additional structuring). However, Scandium Aluminium alloy can be welded, which compounds the weight-reducing benefits.

This means the use of Scandium can save billions for airlines by reducing the weight and therefore the fuel expenditure on planes. Also, it can accelerate mass adoption of electric vehicles by reducing weight and improving battery mileage etc. 

It has been estimated that there is in excess of USD20bn worth of Scandium in the Syerston deposit (now called Sunrise). This estimate is based on more than a 50% reduction in current price of Scandium (to accommodate for wide adoption of the mineral at an affordable price).

Almost 30 years after taking control of Syerston (it was sold to BHP who invested heavily to determine the value before Friedland re-acquired it), Friedland found what he had been waiting for (the right technology) to unlock this USD20bn of value.

How did Robert realise that the business model was initially wrong and what did he do to avoid the mistake that kills most startups?

During 2014 and 2015, Friedland invested AUD1.8m and became the Chairman of Clean Teq. He divested the company’s air purification division and acquired Syerston from one of his holding companies in exchange for further equity in Clean Teq. Essentially, he bought in again using the asset, in addition to his initial cash investment. As a result,Friedland’s holding stood at around 20% in 2016.

“Promoting a stock is like making a movie,” Friedland once said. “You’ve got to have stars, props, and a good script.” 

Clean Teq started out under Robert Friedland’s oversight as a pure Scandium play. However, in 2016, the company quickly changed its tune and started positioning itself as a Cobalt and Nickel play after realising that raising the required cash to build the world’s largest and highest grade Scandium mine could not be done by selling the Scandium story alone. Investors couldn’t see the big picture.

So, rather than stalling and pivoting too late, Friedland made a quick switch into Cobalt and Nickel. Syerston (as it was known back then) also had one of the largest Cobalt deposits outside of Africa. Friedland quickly changed the story from the latent demand for Scandium to the global problem of emissions and the lack of resources available for the inevitable Electric Vehicle (EV) revolution, which requires Nickel and Cobalt for batteries. 

As a result, the company hit a AUD1bn valuation in 2017 and raised ~USD120m after having already raised more than ~USD60m since 2015. Now the company is on track to mine Cobalt and Nickel in 2021, while pulling out and stockpiling approximately 80 tonnes of Scandium at no cost (~8x the current global supply). They are looking to sell this Scandium at a 75% discount to current prices of AUD5,000 per kilogram, which will generate approximately AUD100m in additional revenue that is not captured in their Definitive Feasibility Study (DFS).

This means they met their objective of building a Scandium mine, albeit indirectly. The story that is still being narrated is about the impending EV revolution, but it’s all about the Scandium and by telling a great story Friedland has managed to have his cake and eat it too. 

In December 2019, Clean Teq announced it had signed a binding off-take for Scandium with Panasonic.

Lastly, the share price of Clean Teq rose more than 1,000% between 2014 and 2018 (from around the time Robert Friedland joined the company up raising a total of more than USD200m).

What did Friedland do to ensure that Clean Teq has enough money to execute and avoid failing like most startups?

Knowing how long and hard it would be to build the mine, he raised over USD 200m to give Clean Teq enough runway for the world to catch up to the climate change issue and for manufacturers to rush to secure the mine’s output. Once the mine is in production, the Scandium will be stockpiled and sold strategically to monopolise the global market.

So, what does this mean for you as an investor?

As you can see from the Clean Teq example, successful entrepreneurs make investors more money, more often because they are able to overcome the major reasons why startups fail. This is reflected in the statistics, which found that first-time and failed entrepreneurs had a 20.9% and 22.6% chance of success, respectively, whereas already-successful entrepreneurs had a 30.6%.

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