Triumph in Adversity

Blain’s Morning Porridge – 8 Feb 2021: Triumph in Adversity

“The one thing that overcomes bad luck is hard work”

What a fabulous weekend. Full of portent and possibility…

Let us start with the Unicorn in the room… 5.5 million Scots’ ecstatic cheers as their First 15 crushed the hopes of 56 million Englishmen on the hallowed field at Twickenham. Wha’s like us! A turning point in our Nation’s story…! Yeah.. just like 1990 – I was there, and we haven’t come close to a Grand Slam since then! The Unicorn is the heraldic symbol of Scotland. Fictional. Much like political promises. There are stories the SNP are considering it as the name for a new Scot’s currency!

The fact the Six Nations Championship is underway is one of the multiple signs that life goes on despite the pandemic. The other games were equally riveting as France mugged Italy, while Wales put the Irish down in a tense grubby match. Even the American’s got in on the act playing their watered down version of The Game on Sunday evening – well done the Buccaneers, and serious respect to Tom Brady playing at 43.. I don’t think any playing on the field at Twickenham was over 30!

But the Big Game was England vs Scotland. The moment of the match was in the first half when Scots winger Duhan Van der Merwe (they are quite a significant clan up in the West Cape glens), was unlucky when the ball bounced too high and he missed a brilliant try. He didn’t react with disappointment – he smiled. He held his thumb and forefinger near together in the universal sign for “so close”. The Scots were all over the English like a nasty rash. Van der Merwe knew Scotland were going to win. He was spot on. Moments later he scored the game’s only try.

Yet, it wasn’t as bad a game as the English press say it was. The English hacks, unhappy and looking for someone to blame are busily writing off their rugby team for indiscipline, lack of imagination, being under/over trained – but the reality is the English team stopped the Scots running up a much higher score. Scotland ran the game, dominated every play and set piece, but try as they might the Boys in Blue could not convert opportunities into points. At the end of the day, you might not think it matters: Scotland crushed the English lion on their home turf of Twickenham.

But it does matter. Points are everything. In Rugby and the real world…

All of which has everything to do with markets and finance – which is what the Morning Porridge is notionally about.

Firstly, the rebellious Scots will get uppity, believing crushing England on home turf means the Auld Enemy will take us more seriously. No, they don’t. It was just a friendly game of Rugby which for once, we Scots, won. Worse than that, the Scots will now be full of themselves – overconfident in success. The Scottish press and Coach Gregor Townsend should be beasting them for not scoring more. They could have. They should have.

Second, Saturday’s match teaches an important lesson for markets: no matter how good we are, how brilliant our game was, how skilfully our players outplayed their players, it all counts for naught unless we convert skill, opportunity and passion into points on the board. That is as true in a game of Rugby as it is business. Scotland need to put more points on the board.

There is no point being the smartest investment manager on the planet without gathering the assets to actually manage. There is no point having the greatest entrepreneurial ideas unless you are willing to go out and fight to get them the financed and launched.

Tenacity and triumph in adversity is everything – which is why, this morning, I need to talk about Mark Kirkbride. He is the CEO of West Cumbria Coal – perhaps the most contentious business in the UK today as they try to open a new mine. I am fortunate to count Mark a friend, but the temerity of the man! He wants to dig a coal mine? Is he mad? No… he is not. The full tale was in the Sunday Times yesterday – press here for the link.

The Thunderer highlights how environmental grand-poo-bahs, the Prime Minster’s father (and French passport holder) Stanley Johnson, and cabinet minister and climate change Tzar, Alok Sharma is “apopletic” at the mine being given approval. Sharma, who will chair the COP26 climate change summit in Glasgow, is said to be furious at the “optics”of the UK lecturing the World on reducing emissions while digging coal mines.

The reason I cite Mark and West Cumbria Coal this morning is it’s got opportunity in the face of adversity and opposition written all across it. Because its coal, and because ESG has become an all-pervading force in finance, the deal to mine Metallurgical Coal in the UK is struggling for all the wrong reasons.

Most folk accept Climate Change is a major challenge. It is. It’s therefore very simple to equate anything and everything involving coal as wrong – just like any old lady who kept a cat in the 14th century was definitionally a witch.

Regular readers will know I absolutely believe in climate change and am completely behind decarbonisation. That’s why I’m absolutely behind Mark and his project to dig a UK mine to produce high quality metallurgical coal. It will be used to bring down the cost of European steel and to reduce the necessity of importing coal – at enormous CO2 cost – from Australia. As part of a long-term strategy to reduce carbon, the proposed new mine will be massively positive for climate gains.

Short-term it doesn’t play so well – especially if “experts” aren’t prepared to listen.

Cutting the carbon costs involved in the production of European steel to build reliable nuclear power stations, more wind, tidal, solar and other renewable energy installations, and using new tech to burn gas more efficiently while scrubbing and sequestering Co2, with the added benefit of creating jobs where non presently exist, all sounds like a positive plan. It is.

Full disclosure time: I’ve been helping Mark and his team source funding for the project. I’ve approached all the conventional alternative institutional financing sources looking for debt/equity investment – the big hedge funds, credit investors, PE funds, pension and insurance real money accounts, most of whom have turned it down on the basis: “Coal? It’s just too difficult. I get that this is different, but my investment committee will be more concerned about the reputational risk of coal or doing anything that might upset the ESG lobby.

A number of smarter, clever funds did the work to really understand the real numbers. A number of them have since been mightily discouraged by the political theatre going on around it. Today the Government is reluctantly allowing the project to continue, but tomorrow politicians – more interested in establishing immediate green credentials for themselves rather than consider the UK’s long term path to sustainable reductions in carbon emissions – could still create future difficulties for the project. That’s a project risk many investors are not prepared to take.

Who wants to take any investment risk when some politicians will be quite happy to sacrifice jobs, carbon transport mile savings, and cheaper steel in order to highlight how resolute they and the UK is in reaching its carbon targets? Any politician in the climate spotlight isn’t going to forego the opportunity to bask in the glory of pleasing coal protestors, while boosting their own immediate position. So much for the long-term carbon savings, or the 500 good carbon improving jobs the project would have created.

The brutal reality exposed by the current noise over the West Cumbria project is climate change policies are a political football with politicians and environmentalists playing to the crowd. Not to the future they claim to be protecting.

While the govt brags about the success of wind power, solar energy and how Britain will lead the world in renewable energy, their boasts conveniently ignore the reality of high maintenance costs, a flailing grid, and the likelihood renewable energy prices will have to rise dramatically to pay for their operational inefficiencies. The reality is secure energy (nuclear and clean new gas) will beat renewables on many long-term metrics, but they are unpopular and don’t achieve immediate green electoral brownie points for Government.

Measures to cut green-house emissions to zero by 2050 exist, but tend not to be the sexy solutions like electric vehicles and offshore wind farms – check out this Porridge comment from January – A Different Green Future.

The West Cumbria project is now caught between the pressure on government to make dramatic gestures versus the need for grown up long-term policy. Getting to zero carbon by 2050 is possible, but it’s going to be achieved by common sense… not looking good through short-term theatricals.

If any institutional investors would like to know more about West Cumbria Mining, and want to think about investments with the potential to achieve real Environmental and Social positives, as opposed to ticking an ESG box to stifle a genuine opportunity, give me a shout and I will put you directly in touch with Mark and his team.

And finally.. 

Following my comments on tax last week, I’d like to share this charming email I received from a Mr Billy McGee, an American who read the Morning Porridge on a US website:

“Mr. Blain, you are from the UK. What gives you the right to: 1 Comment, or offer your opinion on US Financial issues and 2: US Politics? Mind your business in the UK. Keep your opinions on US matters, to yourself.”

I cordially invite Mr McGee and any like-minded souls to unburden themselves from the bother of reading my comments any further, and suggest they go find a nice comfy tree to de-evolve themselves in.

Meanwhile I shall comment upon whatever I damn well like and if that is calling the ignorant ignorant.. I shall continue to do so.

Five Things To Read This Morning

Thunderer – Pressure grows on HSBC over Hong Kong Activist Ted Hui

FT – Cost of Liability insurance for company directors soars

Garuniad – Debt levels soar for business as UK economy struggles to recover from Covid

BBerg – Longest-Reigning Major EU Bank CEO Has One of its Worst Records

WSJ – SoftBank Turns $11 Billion Profit, Helped by DoorDash

Out of Time, and back to the day job….

Bill Blain

Strategist, Shard Capital