Firestone Diamonds   Liqhobong Highlands Q2 2014

Firestone Diamonds

Liqhobong Diamond Mine

Firestone Diamonds is developing its flagship asset, the Liqhobong Diamond Mine located at the head of the Liqhobong Valley in the Maluti Mountains of northern Lesotho in Southern Africa. The Liqhobong Diamond Mine is owned 75% by Firestone Diamonds, and 25% by the Kingdom of Lesotho.

Construction of the Liqhobong Diamond Mine treatment plant and associated infrastructure commenced in July 2014. At the time of writing, the project remains on time and on budget, and it is anticipated full production will commence in mid 2016.  At least 89% of orders and lead items under engineering, procurement and construction budget have been placed.  Key related infrastructure, including connection to the main power grid, is expected to be achieved in the second half of 2015, ahead of schedule. RCF Senior Project Director Allan Brownrigg chairs the Project Steering Committee for Firestone Diamonds’ Liqhobong Mine.

The project team is fully in place, and the development has already created over 400 jobs, which will increase over the course of the project, and is maintaining its target of zero lost time injuries.

Once constructed, it is anticipate the mine will produce diamonds at a rate of 1.1 million carats per annum.

RCF’s Investment

In early 2014, RCF VI provided a bridge facility in an amount of US$5M, a mezzanine facility in an amount of US$10M and an equity subscription in an amount of US$30M, which with other funding (including other funding facilities from third parties, project finance debt, and a public equity raising of US$40M) completed a total funding package of US$222.4M, that should fully fund development of the Liqhobong Mine.

In addition, in April 2015, RCF provided a further standby debt facility of US$15M. This provides the company with a buffer in developing the project. The funding also satisfied a condition that would allow the company to drawdown on a project debt facility of up to US$82.4 million provided by Absa, one of Africa’s major financial services providers. As the project is on time and on budget, it is not anticipated that the standby facility will be needed.

Supportive Investment Structuring

RCF’s Firestone Diamonds investment is an example of how the firm can provide flexible funding options to meet the needs of companies as well as long-term patient capital that supports emerging companies to process the development of projects. In April 2015, RCF Managing Partner James McClements acknowledge that it had been a tough time recently for the mining sector with falling commodity prices and weak public markets impacting cash flows of operating companies.

“At RCF we take a long term view of value, and so are pleased to partner with Firestone Diamonds to provide development funding and support for the Liqhobong Diamond project,” said RCF Partner Mason Hills.

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Managing Partner Message
James McClements, Managing Partner

As a specialist in mining, Resource Capital Funds regularly observes the benefits that our trusted partnership brings to portfolio companies. We have proven many times over the value of not just being an investor but a patient advisor with extensive industry experience.

We often work with companies which have known assets, yet possess limited capital but have the depth of technical capabilities to develop the asset into cash flow. It has been encouraging to see that even despite the downturn in the mining industry in recent times we are still observing positive progress across a range of our portfolio companies. Essentially this has been because we have been able to identify assets with upside potential prior to investing, despite weak market conditions, and then work with the company over the long term to realize the potential of their project.

This month we have published a case study on Firestone Diamonds, an African diamond developer with its flagship asset in Lesotho, Africa. Firestone Diamonds is under construction and has been supported by RCF throughout the process. We are able to support construction activities with insight from our Denver-based Senior Project Director, Allan Brownrigg, as well as the Senior Partner, responsible for a significant team with specialist technical skills, Ryan Bennett, which is integral in RCF’s technical and due diligence offering.

Please continue to check back to the website for more recent announcements and insight from Resource Capital Funds.

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Interview with Ryan Bennett, a Resource Capital Fund Senior Partner

Ryan Bennett is one of Resource Capital Funds Senior Partners and has been with the firm since its inception in 1998.  Ryan specializes in managing technical risks in mining projects yet started his career as an exploration geologist.

My interest in economic geology and mining started in my early youth as our family often traveled to Colorado from Wisconsin for vacation.  Colorado, with its diverse geology and rich mining history piqued my interest in these subject areas leading me to pursue an undergraduate degree in geological engineering at the University of Wisconsin – Madison and ultimately a master’s degree in mining engineering at Colorado School of Mines, thus satisfying both of my interests academically.

My early career reflects my academic pursuits, starting as an exploration geologist in Alaska and working at the now defunct United States Bureau of Mines on strategic minerals projects.

I later worked as a consultant to Caterpillar before receiving a fellowship from NM Rothschild & Sons funding my master’s degree and providing an internship in 1992 to work in their newly established office in Denver.  That internship led to full time employment in their project finance team in a technical role and the opportunity to spend time in a similar role in their Sydney office from 1993 to 1995.  It was in Sydney that I first had the opportunity to work with James McClements, following him back to Denver to oversee technical due diligence for the many project opportunities that were being identified by a more aggressive marketing approach to the junior mining sector.

Ryan transitioned from Rothschild’s to Resource Capital Funds in 1998.  He notes both the markets similarities between then and now and also the differences experienced as the firm has grown over almost two decades.

Early days were very interesting given the market environment at the time, which isn’t dissimilar to where we are today.  The equity markets were not very supportive of the industry and we had a very small fund (RCF I, $41 million), that was principally devoted to funding feasibility studies.  Being part of a small team of three, we got to see and do everything, getting involved with projects around the world representing multiple mineral commodities.

My role today has evolved since the early days, although technical risk management remains a key element.  Today I oversee a technical team which has grown from one person to a team of many specialists including geologists, a metallurgist, a mineral processing engineer, and our project management group.  Within the technical team we also have an individual focused on environmental, social, and corporate governance (ESG) issues, a very important role today given the challenges developers face in these areas.  We plan to further build the team to also include a mining engineer which will compliment the rest of the technical skills within the team.

For Ryan and Resource Capital Funds, it is the ability to effectively evaluate and mitigate risk that makes the firm a leader in the mining industry.  Ryan explains that their risk management focus is broad based encompassing all risks faced by the industry.

Risks within the mining industry are quite broad based including legal, political, commercial, technical and environmental. Our success is being able to proactively identify, mitigate, and manage those risks.  Risk management is ultimately our livelihood.  My focus, along with our technical team, is to really dwell on those key technical risks, such as resource and reserves, mining, metallurgy, and project development as well as ESG considerations.  RCF has been quite progressive in this space, with its technical specialists addressing key project development challenges in order to add value to portfolio companies.

RCF has recently allocated a portion of RCF VI to exploration.  Its not that we haven’t had exposure to exploration before, but now we are looking at pure exploration plays.  We see significant value here as little exploration dollars are being expended and the public equity markets are unsupportive.  From a risk management perspective, exploration presents a different risk profile.  It is definitely higher risk, the probability of exploration being successful has always been low, but with a properly structured, well diversified portfolio, exploration risk can be managed.  It is exciting, with the addition of exploration to the fund, we are now covering the entire mine development spectrum from early stage exploration all the way through developing and operating assets.

After almost two decades with Resource Capital Funds, Ryan has experienced first-hand the benefits the firm brings to its portfolio companies.  In addition to being a patient investor Ryan talks about the value of Resource Capital Funds deep technical and operational experience. 

The most obvious benefit for the companies that we invest in is that we are patient capital.  The public equity markets tend not to be.  Mining project development takes time, it just doesn’t happen overnight.  If I look at some of the great successes that we have had, it is only because we were supportive and patient investors.

We see value creation through developing projects.  Often management teams come to us and they don’t have a team with the full skill set available to them to be able to take the project through development.  It is being able to work with the company to help build or enhance the team that puts the company in a position where they’re going to be a successful project developer.

We often see ourselves acting as a catalyst, bringing together a development ready project and the appropriate project finance.  Often the project financier has been unsuccessful in prior projects due to cost overruns and weak equity sponsors.  Our focus on appropriate project management is designed to mitigate the completion risk.  If issues do arise, as they sometimes do, we are there to be the strong equity sponsor so that the project financier can take comfort in knowing that the project will be completed.

Because of the cyclical nature of the mining industry, academic departments servicing the industry are often challenged.  Ryan is passionate about the human resource issues faced by companies and participates in university advisory committees for the Colorado School of Mines and the University of Wisconsin.

It is difficult to allocate faculty and resources to a department that might have 100 or more students in an up cycle but 10 in a down turn.  We recognize that the success of the mining industry and ultimately RCF will be dependent on a stream of well-qualified graduates.

We work with a number of key resource based academic institutions providing financial support to students as well as internships within RCF, not dissimilar to my support from Rothschild early in my career.  It has been great to see the caliber of students coming from these institutions.  The concern is whether it will continue if proper support is not provided to academia.  This is one of the issues that I have been able to consider sitting on the advisory committees.  How can industry work with academia to provide a sustainable education program that can not only withstand the cycles but provide a relevant candidate in an evolving environment?  While we don’t have all of the answers yet, certainly commitment is needed from industry to assure that it has a consistent supply of new graduates.  If we don’t, we will see the gap between senior and junior professionals continue to grow.  We want to see consistently well qualified people entering the mining industry, appropriately managing risks and sustaining the industry for a successful future.

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RCF’s Expertise Available to Portfolio Companies During Key Development Phases
Allan Brownrigg, Senior Project Director

Cost and schedule overruns have long plagued the mining industry affecting both major and junior mining companies. With this in mind, plus the strategy of Resource Capital Fund VI L.P. (“RCF VI”) to develop construction ready projects, RCF added project management professionals to its Technical Services team to focus on assessing projects during the feasibility study phase, and support companies during the execution phase.

Although many Owner companies produce feasibility reports they often fail to be complete, concise and correct. Guidelines such as by the Association for Advancement of Cost Engineering International (AACEI) are known by many consultants, and spell out the degree of work that must be completed to satisfy a robust study.

Among the failure factors affecting the quality of reports, with respect to the Owner:

  • The agenda may be to display the asset for immediate sale;
  • It does not possess sufficient funds to pursue an industry standard study;
  • The project team responsible for the study is incapable or inexperienced in selecting and then managing the study consultants.

Typically RCF encounters deficiencies in freezing of the project scope; geotechnical studies for water management, plant and infrastructure locations; basic engineering progress; estimating; scheduling; Operations Readiness; Project Execution Plan; and Risk Register. Using experience and benchmarking RCF is able to quantify and distribute cost and schedule ranges in its Financial Model to ascertain the project’s health.

At the time of project funding RCF continues to follow the detailed engineering, procurement, construction and start-up activities during the execution phase. As a minimum a monthly report and a Project Steering Committee are established with the Owner project team. Site visits are also conducted as required.

Among the failure factors affecting the success of the project execution:

  • Scope creep after the feasibility is issued
  • Site access, community and permitting issues
  • Geotechnical surprises
  • Weak Owner project team

Although RCF has extensive in-house expertise it also employs known consultants to ensure quality due diligence of the study resulting in an informed investment decision. In many cases the decision is to invest for a period of time wherein the study is de-risked and improved, frequently with RCF in-house and consultant resources assisting the Owner project team. This working with the Owner project team continues throughout the construction phase in tracking key performance indicators to obtain the best project outcomes for the Owner.

Martin_Valdes

New Latin America Office in Santiago for Resource Capital Funds

Resource Capital Funds (“RCF”) is pleased to announce the opening of a new Latin America office in Santiago, Chile and the appointment of Martin Valdes to the new role of Managing Director, Latin America.

To date, RCF has been covering Latin America with a single representative and from regional offices in the USA, Australia, and Canada.  The firm’s management team believes there are many opportunities in the area for a dedicated team to develop the business with a local presence and dedication.  The appointment of Mr. Valdes will solidify RCF’s commitment to building a presence in Latin America.

RCF Managing Partner James McClements said that Mr. Valdes would be responsible for cultivating and maintaining relationship to drive potential deal flow for RCF as well as building out a Santiago-based capability to cover the region.

“The appointment of Mr. Valdes comes at a strategic time when we have identified many potential opportunities in the Latin American resources market. He brings years of valuable experience to RCF and will work closely with the investment partners and management teams to build a strong presence in Latin America and a key industry partner for resource companies seeking capital,” said Mr. McClements.

Martin Valdes is an experienced investment banker who has developed most of his career in New York and most recently was a partner in his own firm in Chile. He received his undergraduate degree in Business Administration in Chile at Universidad Catolica de Chile and then his MBA with distinction from the University of Michigan Business School in Ann Arbor.

Mr. Valdes’ career has included roles in investment banking, business development, and deal origination for companies including JP Morgan and Citigroup.  At Citigroup, Mr. Valdes formed part of the investment banking group, focusing on Latin America and leading M&A deals mainly in the industrial, metals and mining and infrastructure sectors.  Before leaving Citigroup, he served as Director of Investment Banking in the Latin American group, heading the M&A efforts in the industrial and metals and mining sectors in the region.

To contact RCF’s Latin American office in Santiago please phone +56 9 4209 4133 or email info@rcflp.com

 

About Resource Capital Funds

Resource Capital Funds is a mining-focused private equity firm that works closely with its portfolio companies to build strong, successful and sustainable businesses that produce superior returns to all shareholders. Since inception, RCF has supported approximately 135 mining companies (and several mining-services companies) involving projects located in 44 countries and relating to 29 commodities.