Private equity filling funding gap

WITH more traditional capital funding sources going missing in the market over the past few years, private equity investment has been one alternative actively pursued by listed resources companies.
Private equity filling funding gap Private equity filling funding gap Private equity filling funding gap Private equity filling funding gap Private equity filling funding gap


Michael Cairnduff

Two such funds, EMR Capital and Pacific Road, discussed the potential benefits of the private equity funding model on the third day of the International Mining and Resources Conference in Melbourne.

Although it is not all good news, particular for junior explorers, as EMR Capital investment director Richard Crookes pointed out, most funds were not going to fund the discovery hole, but would more likely look to deploy funds at a later stage in the project cycle.

"If you want private equity in an earlier stage of development, it is best to start private," Crookes said.

"You are far more likely to attract private equity at an early stage if you are a private junior."

Pacific Road partner Mike Stirzaker said he his company had observed a number of new general partners entering the market, with many of the based in London.

"We welcome new entrants, and will be interested to see where they will deploy their money and at what stage of a project," Stirzaker said.

"In terms of competition, we don't see them as competing with each other, the competition comes from more traditional funding like broker-sourced funds."

Unlike other investors who may be prone to simply selling their stock if something goes wrong with a company, funds are more likely to stick around, as once they draw down from their investors they only get to spend the money once and if something goes wrong or there is an expectation the fund will help find a solution to recover value.

Stirzaker said private equity was sticky money, but ultimately it did have to exist, but funds usually had thoroughly evaluated an appropriate route of exit before investing.

Crookes contributed along these lines, reiterating that funds were financial investors and had to exit to realise value for their investors, but he said they tried to exit leaving some money on the table for next man in.

He said funds were there to help projects advance and support development through to the point it was appropriate to realise a return on the investment, which could be through a takeover of the company invested in by a larger mining house, as an example.

"There is probably $10 or $12 billion of unspent money in the funds we know of, so there is a huge amount of capital out there and it needs to be deployed soon, investors want to see it spent not just parked," Crookes said.