Private equity’s evolving role in mining – by Alisha Hiyate (Mining Markets – December 19, 2013)

In his fifteen years with Resource Capital Funds, a firm that pioneered the role of private equity investment in mining, partner Ross Bhappu has seen some big changes. One of them is in the willingness of the institutional and other sophisticated investors that provide the capital for private equity funds to invest in the mining sector.

“We had a very hard time raising our first couple of funds just because you do have to educate investors about the mining sector and they have to buy in to the whole idea that there’s tremendous value to be created here,” Bhappu said in an interview.

Resource Capital Funds (RCF) managed to raise US$41 million for its first fund in 1998. In contrast, earlier this year, it raised an impressive US$2 billion for its latest fund (Fund VI).

“Once you start building a track record over, in our case, fifteen years of being successful in investing in the space, all of a sudden they do take notice,” Bhappu said. “A lot of investors are waiting to see your track record and to be able to test a hypothesis over a number of years.”

As a result, Bhappu says RCF now has a large investor base that feels comfortable investing with the firm even though they are very conservative investors — university endowments, charitable trusts, family offices, pension funds and other institutional investors.

“Keep in mind, they’re putting a very small percentage of their overall portfolio into our sector, but they are saying this is an important sector to be in,” Bhappu said.

Another big change that Bhappu has seen over the past decade is the number of private equity firms interested in mining.

About seven or eight years ago, Bhappu says the big energy funds started to develop an interest in the sector. In the last few years, generalist private equity funds (KKR, Apollo Global Management, Carlyle Group, Blackstone, etc.) have also started to see opportunity in the mining sector.

Even so, Bhappu says he’s not seeing more competition for assets.

“We generally don’t bump into other funds when we’re evaluating deals,” he says. “Periodically we do, but I’d say as general rule, our real competition is the equity markets.”

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