10/03/2011 - 00:00

RCF pioneers mining focus

10/03/2011 - 00:00

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JAMES McClements and his colleagues at Resource Capital Funds are at the peak of their game.

RCF pioneers mining focus

JAMES McClements and his colleagues at Resource Capital Funds are at the peak of their game.

Their low-profile firm pioneered a new specialist sector in the private equity industry, they have recently raised $1 billion, and they have complete discretion about how they invest the money.

In total, Resource Capital Funds has raised $1.9 billion from about 100 institutional investors, with its $1 billion 5th fund being by far the largest.

The money has, in turn, been invested in about 90 mining companies operating in 35 countries and about 30 different mineral commodities.

Its investments have been in both private and public companies, and range from early stage funding of feasibility studies to growth capital for established businesses.

“We are completely unconstrained in terms of the style of investing that we do,” Mr McLements said.

Its current Australian investments include Talison Lithium and Global Advanced Metals, which both emerged from its acquisition of failed miner Sons of Gwalia’s advanced minerals business.

Another major investment is Queensland magnesia producer QMAG, which also emerged from a corporate failure.

Listed companies Ausdrill, Bannerman Resources, Murchison Metals and Finders Resources also count RCF among their shareholders.

Historically, it has been an investor in gold miner St Barbara – after winning a hostile boardroom battle – as well as engineering group Ausenco and coal miner Excel Coal.

Internationally, its big success stories include US-based rare earths company Molycorp Minerals.

RCF’s current status as a large activist investor in the mining industry is, like most success stories, the culmination of a long period of development.

RCF counts itself as the world’s first private equity investment manager to specialise in the hard rock mining industry.

It was established back in 1998, when mining was out of fashion and most investors were looking for dot.com opportunities.

In its early days, it was closely associated with the Rothschild banking group, and its first two funds had a narrow investment mandate tied to Rothschild’s activities.

Since 2001 it has been owned by eight partners, and has progressively widened its investment mandate as it has built a track record.

Mr McClements said RCF had spent several years cultivating many of the investors who have invested in its funds, in order to win their support.

“The vast majority of our dollars are raised in the US,” Mr McClements said.

“The institutional investors saw this as a useful addition to their portfolios.”

RCF currently operates from joint head offices in Denver, Colorado and Perth, and globally has a team of 25 investment professionals.

Mr McClements believes RCF’s growing team has enabled it to maintain its investment performance as the funds have grown in size.

RCF is an activist investor, contributing capital, skills, networks and strategic guidance to its investee companies, usually but not always with board representation.

“Our role is to have a say and make a contribution,” Mr McClements said.

The group’s mining focus is just one of its points of difference. Unlike most private equity funds, it does not use leverage, or debt, to engineer higher returns.

RCF also has a long time horizon, with investors putting money into each fund for a 12-year period.

“We often invest for five to seven years, sometimes for eight to nine years. We don’t have redemption pressures.”

Mr McClements said the group’s Sone of Gwalia investment illustrated its long-term perspective.

It bought the advanced minerals business from Gwalia’s administrators, and subsequently separated the tantalum and lithium operations into Global Advanced Metals and Talison Lithium respectively.

Mr McClements said they made the investment knowing the business needed major restructuring and that the global tantaum market was dysfunctional.

The tantalum operations at Greenbushes and Wodgina were put on care-and-maintenance two and a half years ago because of the combined effect of the global financial crisis reducing demand for electronics and an increasing amount of conflict material entering the supply chain from the Democratic Republic of Congo.

Global has since worked closely with its customers and government agencies to improve the operation of the tantalum market, and in January announced the reopening of its mining operations in WA.

Talison Lithium has also had its ups and downs, including a failed attempt to complete a $194 million IPO on the Australian stock exchange.

It subsequently merged with Canadian company Salares Lithium and is now listed on the Toronto Stock Exchange.

 

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