Can you start by telling us about Resource Capital Funds and your role there?
Resource Capital Funds (RCF) is a mining focused private equity firm. We literally pioneered the concept of raising capital to specifically be invested in the mining industry. That was back in 1998, 27 years ago. Since then, we have raised around US$5B, and we’ve done over 230 transactions and over 180 exits through the life of our funds. So, we have a long track record, working across 50+ jurisdictions and 30 different commodities. We have a lot of expertise in the different commodities and obviously in critical minerals, which is one of the main trends right now.
I’m a partner and I run the private equity strategy at RCF. For our Private Equity fund we focus on the latest stage part of the cycle. So, the project has to be at a pre-feasibility stage or further along.
What sort of criteria do you use to make a decision or assess what makes an investable project or company? Are there certain key criteria that you use?
That’s a very good question. It’s always a risk return type of analysis that we use and obviously there is no investment without risk. So, we need to understand those risks.
We need to see how we can mitigate them and then we need to analyse what the return potential is and compare that with other opportunities that we have at the moment.
In this industry, technical is one of the main risks, and a big part of our DNA is our technical expertise. So, we spend a lot of time trying to understand what the main risks are from that technical side. And each commodity has its own risk. Since we focus more on the latest stage part of the cycle from the private equity strategy, we leave aside the geological risks. So, we invest in companies that, at the end of the day, already have the reserves.
We look at the exploration upside in all of those investments, but essentially, we’re working with companies who already have some reserves, so that’s very important to understanding if we’re building something.
Different commodities each have their own areas where we need to focus. For instance, rare earths are more on the metallurgical side, but if you go into the base metals, it’s more about the execution of building something. Experience across commodities is key – RCF has invested in 35+ commodities, and our in-house technical team comprises geologists, metallurgists, engineers, ESG specialists — that’s a key part of our process.
The other risk is mostly about the people. Who is the management that will execute this project? Mining is all about execution and people, so that is a very important area of focus for us and an important value add that we bring into our investments, where we help companies boost their management teams and their boards, and get them ready to go into that execution.
In summary, it’s mostly that risk return analysis, what is the investment thesis that we’re playing and what are the main risks and how can we mitigate them?
Looking at risk, the impact of geopolitics is a huge topic for the industry today. How do these macro, geopolitical factors influence investment into this sector?
More than a risk, I would say it’s an opportunity. We’re true believers of the energy transition. And when I talk about energy transition, this is mostly around penetration of electric vehicles (EVs), electrification, decarbonization, etc. A growing focus now is more technological improvements or advancements, looking at robotics, artificial intelligence (AI), and all of that.
But what is the other main trend in the mining industry? This has become so dynamic, over the last three or four years, mostly because of current geopolitical factors. In the end, every single government somehow wants to secure the supply of these critical minerals that will make this whole energy transition possible, and that is playing a huge role in the mining industry. We have a lot of conversations with different governments, with OEMs, and all of them are really trying to see how they can secure that supply. So, it’s definitely a huge trend right now in the industry, especially around critical metals.
You mentioned speaking with various industry players, and especially the OEMs who seem to be taking a greater role within the investment space. Can you talk a bit about the role of private equity in this funding environment and how you see that evolving moving forward?
I think private equity will play a fundamental role in the next five to 10 years, especially around the energy transition thematic. Mining is obviously a very capital intensive industry. It takes a lot of time to develop a project and requires a lot of capital and a lot of technical knowledge.
There have always been two sources of funding, if I can put it in simple terms.
One way that people refer to the private equity market is ‘smart money’. This trend that we have been seeing, probably for over five to seven years, is that a lot of the public markets, the retail money, has been going into other industries. This really started with blockchain. I think the most recent opportunity has been around Bitcoin and so obviously we’ve seen a lot of those public markets have been drying up. So, for a lot of these mining projects to continue advancing, they have been relying on private equity.
Going to your point around the OEMs and also governments, I think they’re playing an important role. I think everyone recognizes that mining is a very technical industry, so if you’re going to play in this part of the of the equation, you need to have that technical expertise. You need to have that track record. And from the RCF side, again, that’s very embedded in our DNA. Over the last 27 years, we have built a platform that allows us to execute on our different investment theses and, essentially, a very important vertical of this platform is our in-house technical expertise.
So, I think a lot of the conversations that we have with OEMs, government, sovereign wealth funds, etc. is that they really want to actually take advantage and participate in both the upstream and also midstream of the industry, and they would rather do it with someone that has already deployed significant capital in the industry.
So, I think private equity is obviously playing a huge role. First, in providing capital to the industry, but more importantly, in guiding a lot of this new money that is trying to come into this part of the cycle and making sure that they are picking the right projects, the ones that at the end can be built.
Looking back on the geopolitical factors, there does seem to be a growing focus in the mining industry on investing across the metals value chains, especially within the critical minerals space. Is RCF taking that sort of stance of looking across the value chains as well?
Geopolitics is playing a huge role and is one of the biggest trends that we see today. This is mostly around the supply of critical minerals, and that supply coming from the western side of the world. A lot of the refinery processing, the midstream part of the cycle, is in China and again, that’s why a lot of Western governments are trying to somehow get access to Western supply so as to not rely on China over time. So we are following that trend very closely.
For us, the midstream has always been something that we have done, essentially because every upstream project has its midstream part of the process, whether you’re looking at copper, gold, or rare earths. It’s not something new for us, but we definitely are trying to analyse this area a little more. Again, looking at the opportunities on those more niche critical minerals and how we can play an investment thesis around some of them. And I think in a lot of them an important part of the opportunity that we’re seeing is mostly in that midstream side that you’re referring to.
Let’s wrap up with some final thoughts for the year ahead, looking at opportunities and overall investment outlook.
Let me start by saying that we are incredibly excited to see what is ahead of us. I think we’re finally having a lot of tailwinds in the metals and mining industry. I’m just coming out of PDAC in Toronto this week. I went to the floor on Sunday and was really glad to see a lot of companies and a lot of people walking around. I think PDAC is a good temperature check of how the market is seeing the industry. So, I would say we’re really, really happy to see the tailwinds coming into the industry.
The key opportunities that we see are mostly around the energy transition. We are putting a big focus on looking for opportunities in these key commodities and again we believe that there is a lot of upside coming in the next 5-10 years. Our view is more focused on three to five years ahead and, again, we’re picking those commodities that we believe will be absolutely needed in that time frame.
