Private equity still has significant opportunities to invest in mining as companies cut debt and rebuild their balance sheets even as the sector recovers, mining specialist Denham Capital said.
Denham, which closed a new $550 million mining fund sooner than expected on Monday, has already acquired two copper projects in South America and aims to invest the rest in the next one to two years, partner Bert Koth said.
“So far we have committed our capital faster than initially thought. We still see a very significant opportunity set out there,” Koth said in an interview on Tuesday.
A relatively recent arrival to the mining space, specialist PE firms emerged after the global financial crisis dried up the availability of capital for exploration and development. Majors meanwhile have been focused on divesting non core assets to pay down debt.
When Rio Tinto offloaded coal assets earlier this year, Melbourne-based private equity firm EMR Capital was among those to buy in, although a spate of recent deals suggests competition may be warming up.
“I haven’t seen this erode or undermine our opportunities yet,” said Koth. “There’s still a significant amount of balance sheet repair out there … that is the catalyst for some opportunities.”
The fund targets base metals, metallugical coal, and industrial and speciality minerals such as nobium, tin and mineral sands in Australia, Canada, South America and Africa.
It invests across the cycle, looking for low cost projects two years or less from production that have been developed by a proven management team, and aims to sell out after three to four years.
Ernst & Young partner Paul Murphy said it was still too early to see if private equity would be able to replicate its success in other sectors in the mining industry as most investments were fairly recent.
“For me, I think the jury is still out on whether it (private equity) will be successful,” he said.