David Thomas, Managing Director, Resource Capital Funds (RCF)

GBR Connect Series

Can you provide us with a brief introduction to RCF?

DT: RCF was founded in 1998 as one of the first mining-focused private equity funds. Since 1998, we have raised six funds, with the current fund being a US$2 billion fund. RCF has offices in Denver, Perth, Toronto, and Long Island. We also have a London-based representative and we are currently opening a Santiago office.

What is RCF’s strategy with regards to choosing new projects?

DT: RCF does not limit itself to a particular mineral. We tend to be opportunity-driven and consider projects with different commodities and jurisdictions. Since 1998, we have invested in over 35 different commodities, 140 different mining companies and in nearly 40 different countries.

Our portfolio is divided into core and strategic investments. Most of the core investments do not include exploration companies, because of the size of the investment that they require. Our strategic investments can be much smaller, and do not demand as much of our time in terms of management and are often exploration focused. Ideally, we want our strategic investments to turn into core investments. We pay close attention to corporate and social responsibility, ensuring that companies are managed ethically.

What is RCF’s exit strategy in this scenario and what constitutes a success?

DT: Our investment exits are typically achieved through trade sales or via trades in the public markets. For RCF, an investment success is one in which an adequate return for our investors has been achieved over the life of the investment, which is typically three to five years. We are driven more by absolute return, rather than internal rate of return.

Does RCF have any Canadian investors?

DT: Over the years we have spoken to several of the Canadian pension funds that invest in private equity. However, none are currently investors. We have a strong established base of US institutional investor, some of whom have been with us since our inception.

RCF has invested in Ontario projects through Noront and First Nickel. What is the nature of your involvement in these companies?

DT: The quality of the asset is the most important investment criteria for RCF. Noront’s nickel-copper-PGM project in the Ring of Fire, Eagle’s Nest, fit well with our criteria. We believed in the success of the project and remained open-minded about infrastructure challenges. Noront is a classic RCF development-stage project in a stable jurisdiction and we think that with the government support it is going to be a significant new mine in Ontario’s north. RCF considered First Nickel deposit as a springboard to build a strong base metals company. While low nickel prices have proven challenging for the operation, the management team has done an excellent job under the circumstances and is capable of operating additional assets.

What are the advantages for mining companies who choose to work with a private equity fund such as RCF?

DT: First of all, RCF has patience to wait to receive a return and we historically have supported companies financially through some challenging times. Secondly, RCF can provide in-house technical expertise, which often is only available to small mining companies through external consultants. Lastly, we have a large network of seasoned industry professionals who have relevant skills and experience to move projects forward.

Is there a level of resistance on the part of mining companies with regards to private equity?

DT: Mining companies often perceive private equity funds as debt providers. In fact, RCF can be creative and flexible in developing suitable financing solutions. Another misconception is that private equity funds are vulture funds. In reality, we are looking for good assets managed by talented teams that have the ability to shepherd projects through the various stages of development.

Is private equity here to stay, when the mining markets picks up?

DT: I cannot speak for our competitors but RCF has been investing in mining for more than 15 years, through good times and through bad. This is all that we do. We are a group of mining professionals who are in this for the long run. While putting capital to work is more challenging for us when the public markets are open for raising capital, the opportunity set is broad and deep and there are always great projects to invest in, regardless of where we are in the cycle.

What does your presence in Toronto say about RCF’s long term commitment to Ontario’s mining industry?

DT: RCF recognizes Toronto as a global financial hub for the mining industry and understands the importance of having a physical presence here, especially given the number of mining companies in Toronto. RCF is here for the long haul, and we will keep working with companies that have great assets and strong management teams to maximize the value of those assets for all stakeholders.

This interview was conducted as part of GBR’s research on the mining industry of Ontario, including a special feature on “Toronto: Mining Capital of the World”, to be published in Engineering & Mining Journal magazine. To participate in this report, please contact Gabrielle Morin at gmorin@gbreports.com