Metals and Mining: A Tale of Two Doughnuts

Preqin has turned its Spotlight on Real Assets in a new publication, drawing our attention in particular to metals and mining.

Among the institutional investors that say they are targeting unlisted metals and mining focused funds over the coming twelve months, Preqin names three as “samples”:  the Compagnia di San Paolo, a foundation headquartered in Turin, Italy; the Credit Suisse Pension Fund (in Zurich, Switzerland); and DeBere Partners, an investment company in London, UK.

These three institutions have somewhat different plans from one another. DeBere for example, plans to invest opportunistically in natural resources, both directly and through funds. This investment will include mining, along with much else (waste and recycling, wind and biofuels.) The CS Pension is somewhat more focused. It says that it is looking at investment in natural resources funds with exposure to metals and energy within its commodities allocation.

The Compagnia is devoted to advancing the arts and cultural activities. Its investment portfolio is designed to preserve and if possible grow its assets over time so that it can continue this work.  Toward that end it is investing in, as Preqin puts it, “unlisted natural resources vehicles that focus on agriculture, energy, metals & mining, timberland and water globally.”

More broadly, Preqin breaks down for readers what part in an institution’s portfolio its metals and mining investment may play.  It is part of the natural resources allocation (as with DeBere) only 15% of the time. It is a stands-alone allocation just 5% of the time. The full doughnut is presented here.

A Second Doughnut

Another doughnut presented in the feature offers the institutional investors with a preference for metals and mining by type.  As is clear, below, foundations (like Compagnia) and endowments predominate, with a healthy share too of public pension funds as well. That is not much of a surprise, as those are among the usual long-horizon investors.
If one looks away from the investing institutions toward the actual funds they are investing in, one looks at such funds as Power Capital International Resources (Power Capital), Arete Capital Partners I (Arete); the WoodsWater Natural Resource Fund (WoodsWater Capital); Tembo Capital Mining Fund II (Tembo Capital); and the Electrum Strategic Opportunities Fund (Electrum Group). Those were the five largest metals and minerals focused funds not yet closed, as of January 2017.

A year ago, Electrum made news by subscribing for and purchasing 36 million units of Vancouver based Wellgreen Platinum Ltd., a minerals exploration company, at an aggregate subscription price of C$7.2 million.

Closed Funds, a Top Five List

Meanwhile, the five largest unlisted metals and mining focused funds that did close between 2008 and 2016 are: Resource Capital Fund VI (Resource Capital); Sentient Global Resources Fund IV (Sentient Group); Orion Mine Finance Fund I (Orion Resource Partners); Resource Capital Fund V (again Resource Capital); and the Waterton Precious Metals Fund II (Waterton Global Resource Management).  Four of those have no geographic focus short of “global.” The exception, Orion Mine Finance, is focused in Australia, Hong Kong, the U.S. and the U.K.

According to its website, Orion Mine Finance sees itself mostly as a PE firm, although its team also “has experience in the physical metals markets, such as facilitating the purchase, metal financing, transporting, processing, and selling of a mine’s output to end customers.”

The respective size and closing date of these five large funds is as follows:

Source: Preqin, Real Assets Spotlight, February 2017, p.8, adapted from Fig. 6.

Resource Capital Funds, the Denver based PE firm responsible for two of those top-five funds, was founded in 1998, which makes it a pioneer in this particular corner of finance.