03/11/2014 - 10:42

$US130m backing for WA mining venture

03/11/2014 - 10:42

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Global private equity group Denham Capital has teamed up with former Karara Mining chief executive Steve Murdoch to establish a venture that will invest in a handful of new and established mining projects.

Denham Capital managing director Bert Koth.

Global private equity group Denham Capital has teamed up with former Karara Mining chief executive Steve Murdoch to establish a venture that will invest in a handful of new and established mining projects.

Denham has agreed to make an initial equity commitment of $US130 million ($A145 million) in the new venture, called Auctus Minerals.

Auctus will be based in Perth and will target new mining projects requiring capital to develop or existing projects that need to be restructured to lift their performance.

Mr Murdoch, who left Karara in July 2013, told Business News he has been working with Denham since March this year.

“We’ve been working intensely for months on our business model and our pipeline management and our interaction with Denham,” he said.

Mr Murdoch said Auctus would probably invest in just a handful of projects.

“If you have a look at our project assessment and where we think there are opportunities, you are probably talking two to three projects; that’s what we’re budgeting and planning on at this stage,” Mr Murdoch told Business News.

He said the investments could be across a broad range of sectors.

The one sector it will not invest in is coal, and “we’re not really keen on something that sparkles; gold, silver and to a certain extent diamonds”.

“If it sparkles, we’re not all that interested because it’s not an industrial metal; they are the broad exclusions, everything else is in,” Mr Murdoch said.

Mr Murdoch has been working with KPMG partner Greg Evans and director Matthew Pedley, who heads the accounting firm’s mining M&A practice.

“They’ve been helping us with research analysis, particularly financial modelling, and tactics and strategies around deploying this sort of business model,’’ he said.

“They’ve got a really strong team over there and have been very helpful while we’ve been developing a business model.”

The Auctus investment is the second big Australian deal announced this year by Denham, which transferred its Asia Pacific office from Singapore to Perth in 2013.

Denham has also committed to invest $US200 million in Pembroke Resources, a company led by former Gloucester Coal chief Barry Tudor that is developing a portfolio of metallurgical coal assets in the Asia-Pacific region.

Mr Murdoch’s most recent role was chief executive of iron ore producer Karara Mining, which is owned by China’s Ansteel and Perth company Gindalbie Metals.

He has also run the Australian operations of UK-based scaffolding group Cape, after it made a series of big acquisitions in the region, and was chief operating officer at shipbuilder Austal.

Earlier in his career, he was general manager of metallurgical operations for Mount Isa Mines.

Mr Murdoch has been joined on the Auctus management team by two former colleagues, finance director Paul Sims (ex Karara CFO) and commercial director Terry O’Connor (ex Cape).

“Our executive team has a highly regarded pedigree in delivering value enhancement outcomes in the Australian resources space,” he said.

“Partnering with Denham, which provides deep entrepreneurial culture and extensive knowledge of the global resources industry, has resulted in the formation of a powerful mining endeavour in Australia.”

Denham’s Perth-based managing director and head of the Australasian region, Bert Koth, said Mr Murdoch and his team had a successful track record of implementing savings to operating and development costs in both base metals and bulk minerals.

“During the mining boom, Australia has become a high cost environment with productivity decline,” Mr Koth said.

“Thus, the key to value creation in Australian mining projects today is the ability to achieve cash flow fast and reduce cost rigorously. Partnering with Stephen and his team will allow us to realize that opportunity.”

Denham is among a handful of private equity groups focused on the resources sector.

These include Resource Capital Funds, run jointly from Perth and Denver, Colorado. It has backed a wide array of mining companies, including MZI Resources, Wolf Minerals and India Resources.

Other private equity investors active in the local mining industry include Sydney-based Pacific Road and The Sentient Group.

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