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By: Matthew Hill

23rd August 2011

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TORONTO (miningweekly.com) – Resource Capital Funds (RCF), the private equity group that backed Molycorp to great success, is actively scouring for new mining deals in Toronto, where it recently set up shop.

And the Denver-based firm expects floundering equity markets to steer more opportunities its way, as miners seek alternative means to raise money to build their projects, partner Russ Cranswick said in an interview on Monday.

“Definitely it’s a better time for us – we do see more opportunities, particularly on the equity side. Equity markets are a big competitor for us, so when that window’s closed, clearly people come to us,” he commented.

RCF has invested about $1.3-billion so far, and has callable capital of around $700-million remaining in the current fund.

The firm, which has a total of some $2.5-billion under management, usually takes up directorships in the companies it invests in, and uses its skills to develop them.

David Thomas, who joined RCF in September 2010, heads up the RCF’s Canadian unit, which opened its office in downtown Toronto in January.

While the company has already invested in a slew of Canadian miners, the fund had now reached a size that justifies having a physical presence in the city that the TSX calls home, and what has become the finance centre of the world for junior mining firms.

“This office identifies opportunities and then leverages off the technical expertise in our Denver office,” he said.

MOLYCORP

One of RCF’s biggest hits has been rare earths producer Molycorp, which the private equity company bought from Chevron and floated in July last year.

In fact, Forbes dubbed the investment as “one of the greatest private equity deals ever”.

Before Molycorp listed on the NYSE, RCF owned 51%, which got diluted to around 30% after its initial public offering.

Then in June this year the company sold another large chunk of shares, bringing its ownership down to around 15%.

Asked to comment on the timing of the sale, which Byron Capital Markets analyst Jon Hykawy at the time called “an abandonment”, Cranswick said there was demand for the shares in the market, and RCF took advantage of that.

“The liquidity was there, and this was an opportunity that we didn’t want to pass up,” he said.

Thomas also pointed out that it was prudent not to have too many eggs in one basket from a portfolio management perspective, and the value of RCF’s holding in Molycorp had swelled.

Its remaining 15% stake was still worth roughly $750-million, he noted.

COMMODITIES OUTLOOK

While Cranswick said RCF does not favour any particular commodities, but rather looks at individual investment opportunities in the resources sector, he said prices in general might come down in the longer term.

“We think they’re generally elevated...in the near term you’ll see volatility,” he commented.

However, Cranswick said that a lack of new future supply for zinc made that metal attractive.

“There are not really that many new mines coming on. Who knows when that will kick into higher prices, but ultimately it’s just not sustainable with all the larger mine shutdowns and not that many development projects.”