What is RCF?
RCF is the manager of mining-focused private equity funds based in Denver with subsidiary offices in Perth, New York (Long Island) and Toronto. RCF's private equity funds invest globally in all mined mineral commodities and in mining projects at various stages of development including advanced exploration through to buyouts of operating and/or distressed assets. RCF is managed by a highly qualified team with extensive experience in all aspects of the mining industry.
Who is RCF?
Two of RCF's partners, James McClements and Hank Tuten, developed the concept of a mining-focused private equity fund in the late 1990s while working together at Rothschild. The first RCF fund was launched in 1998 and RCF closed its fifth fund in mid-2010. RCF's investment committee members, James McClements, Hank Tuten, Ryan Bennett, Ross Bhappu and Russ Cranswick have worked together in the industry for in excess of 20 years.
Is RCF private equity or more like an institutional investor?
RCF has raised five separate funds including the $1.02 billion Resource Capital Fund V L.P. The Funds employ a range of investment styles including provision of development capital and buyout or distressed investing. The style of the transaction will vary depending on the nature of the investment. In all cases, the opportunity will represent a fundamental value proposition.
RCF can be differentiated from a typical leverage buy out (LBO) firm for many reasons, including: a lesser reliance on debt as a funding source, a longer term investment time horizon and its focus on a single sector, mining.
RCF can be differentiated from an equity investor as it is much more than just a source of capital. We offer technical, strategic and management support for the Funds portfolio companies. This contribution has and continues to be a key driver of value creation for all shareholders in portfolio companies.
The Fund's investment decision will be made following rigorous analysis of the specific asset and market fundamentals based on a broad range of factors. The cyclical nature of the commodity market will be just one of these factors and it is worth noting that movements in commodity markets often throw up a number of opportunities for the Funds. Also the Funds have a longer term investment horizon than other institutional investors which provides portfolio companies with an additional buffer of protection from short term commodity price fluctuations.
Does RCF only invest in large companies?
No, the Funds have the ability to invest in companies and assets of all sizes and stages of development. The Funds have a disciplined approach when it comes to investment but the size of the company is not the determining factor in whether an investment will proceed.
Does RCF invest in exploration?
Yes, if it is the right opportunity for RCF's Funds. RCF's Funds have investments in assets that span a wide range of stages in the exploration and development life cycle from advanced exploration through to well-established mining operations.
RCF's mandate allows the Funds to employ a variety of investment styles ranging from the provision of development capital through to equity or hybrid securities through to the buyout of operating or distressed assets. RCF can tailor the structure of its Funds' investments to cater to the specific needs of most companies that meet our fundamental investment criteria.
How does RCF engage with the management and strategic direction of portfolio companies?
RCF prides itself on providing high-quality technical and strategic support for the management of portfolio companies and has added a significant amount of value for all shareholders by doing so. At the same time, RCF has a rigorous assessment process and respects the ability of its Funds' portfolio companies to manage their assets. It does not interfere with the day-to-day running of its portfolio companies but our experience is that our expertise is welcomed and our track record suggests this involvement has been pivotal to significant value creation in a number of our portfolio companies.
Why would a company raise money through private equity rather traditional equity or debt?
Three main reasons:
- First, RCF's Funds cost of capital is extremely competitive when compared to alternative funding sources.
- Second, RCF's Funds are a very steady and long term source of capital - its availability is not dependant on the performance of equity or debt markets. For example, RCF was able to raise $1.02 billion for RCF V during 2009, a time when most mining companies found it very difficult to raise financing.
- Finally, RCF is more than a source of capital, RCF prides itself on providing high-quality technical and strategic support for the management of portfolio companies and has added significant value for all shareholders by doing so.
RCF conducts extensive and rigorous due diligence on all of its Fund's investments and will only proceed after an opportunity has satisfied a broad range of criteria. As a result, RCF has confidence in the asset or assets and management of portfolio companies and respects their ability to drive returns.
What does RCF look for in an investment? What criteria must it satisfy?
RCF looks for opportunities that will generate strong returns for our Funds and all company shareholders. Therefore we are looking at commodity profile, the project or projects held by the potential portfolio company, the location of these projects and whether there is anything special that RCF can bring to the table. This last point is significant - the value RCF and the expertise of its team can bring to value creation. In addition, management is very important to us. Ultimately, the size and quality of the resource or the project is what will seal the investment for RCF.
Are there any regions where RCF would not invest?
The only jurisdictions where the Funds will not invest are those with excessive sovereign risk, those that are experiencing military conflict, countries that are the subject of international sanctions or those in which it is illegal for a US entity to invest. As a general rule, if we would not send our people there then we would not invest there.
As a private equity fund, RCF's Funds will have to exit its investment at some point. How does RCF do this and doesn't it pose a risk to other shareholders?
The Funds have an established track record of exiting investments in a managed, disciplined manner - with a strong emphasis on minimizing disruption to the portfolio company and its share price, if listed. After all, the Fund's interests are aligned with the interests of other investors. In fact, many of our portfolio companies experience continued growth after our exit.
On average, the Funds hold investments for approximately four years with a few hold periods as long as six to seven years. But there are occasions when market dynamics and opportunities lead to monetizing investments - or part of its investment - in a shorter or longer time frame.
Are there any sectors or commodities RCF would not invest in?
The Funds invest in all mining commodities with the exception of oil and gas. However, we would not invest in any commodity, company or geographic region where there is no opportunity to invest meaningfully and see strong prospect of a good return.
RCF invest across a wide range of geographies and commodities - but are there any common characteristics of the companies RCF typically invest in?
RCF seeks to make investments that it believes have the following characteristics:
- A project for which there is sufficient technical and other data to allow RCF to analyze the value proposition and to conclude that its investment objectives can likely be met.
- An experienced and effective management team with a strong record and a deep commitment to the company and the project.
- An environment in which RCF can actively participate in dialogue regarding forward planning for the company and the project, with such participation often taking the form of a board seat, is welcomed and encouraged by the management team.
- Factors which allow RCF to reasonably conclude that there will likely be one or more opportunities for a profitable exit from the investment in the three to five year time horizon.
What does RCF look for in an effective management team?
RCF believes that effective management is just as important as a project's technical characteristics or market conditions. It has found that the vast majority of success stories in the mining sector over time have been instances in which there were strong management teams in place. On many occasions, where required, RCF has been instrumental in assisting the Fund's portfolio companies in strengthening their management teams. Most frequently this has taken the form of helping identify and recruit senior managers or board members to supplement the skills of and to work alongside existing management and directors. Most of the Fund's portfolio companies have had the same CEO at the time of the Funds investment and at the time of its exit. Good management, and continuity of management are very important to us.
What is a portfolio company?
We refer to companies that RCF's Funds invest in as the Funds' portfolio companies.
What is a Limited Partner (LP)?
Limited Partners are the university endowments, fund-of-funds, family offices, charitable trusts, foundations, pension funds and other groups who invest in a private equity fund. RCF's Funds have approximately 150 Limited Partners in its three active private equity Funds who are almost exclusively US institutional investors.
