Mining Private Equity Unmasked (Fraser Perry)

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If it can be built and ramped
up, yeah, everyone can get paid.

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It's great.
You have, you know, CapEx

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blowout management team can't
deliver, you don't get the

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commodity price tailwinds you
were expecting and all blow up

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pretty quickly.
Fraser welcome mate, how are

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you?
Hi, guys.

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I'm good.
Thanks.

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Fraser Perry JD is our guest
joining us on Mike today.

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Fraser is well to start off with
you, just a great bloke.

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I've talked to you.
You give us so much energy.

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Like some of the books on his
bookshelf were kindly donated to

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you.
But that's not your biggest

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credential.
You've come out of just a career

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in private equity, a mining
engineer.

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These days you're working in
corporate development at A, at a

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growing miner, ASX miner.
What we're going to talk about

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today is the role that private
equity plays in the mining

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sector, financing mines into
development.

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The, the ways of private equity
or that pool of capital is

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changing over time.
The, the challenges that the,

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the model has and the
opportunities that presents the,

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the, the incentives along that
we're going to kind of open the

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curtain on what's been a bit of
a mysterious pool of capital to

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ask to our listeners.
And we're delighted to have your

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your expertise kind of peeling
back the curtain on some of

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these big topics.
Fantastic.

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Yeah, pleasure to be here, guys.
Private equity was a black box

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to me Yeah, before I, I joined
my last role, which was at RCF

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Resource Capital funds.
I remember, you know, working as

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a mining engineer, applying for
this job with RCF, I'd seen on

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LinkedIn and thinking what is
private equity?

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Trying to Google what they, what
they even do, what the structure

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is.
So thankfully, you've learned a

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huge amount of how it operates
and how mining private equity

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funds are set up.
But yeah, there is very little

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information you can sort of
glean, you know, publicly.

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So happy to share what I can
from my experience on the

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inside.
It's a big.

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It's a big player in, in our
market and it's an even bigger

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player in, in global investment
markets.

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It gets huge capital allocations
from endowments specifically in

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the US.
But I'm super keen to unpack it

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because we obviously speak with
heaps of investors on this show,

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but we never speak with private
equity investors because they're

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a bit coy, they're a bit shy,
they're.

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Not allowed to because the money
comes from US pension funds and

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they're bound by all these SEC
restriction restrictions and so.

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RCF no different.
RCF no different.

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Yeah, we never, we, I don't
think we've ever had a private

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equity group that has said, yes,
you can voice my comments.

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Yeah, it just doesn't happen.
I think you spot on, but we need

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to pull back the curtain because
they are still very present in

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our space.
We have spoken so much about

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like recent deals, you know,
Quintero's one that comes to

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mind, great bit of action then
going at it for, for New World.

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So we're, we're really excited
to, to peel back the, the

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curtain, understand what you
learnt on the way, how your

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thoughts after the fact change
from what you thought you were,

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you were jumping into.
And I think for a lot of punters

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out there, just understand the
the role that they play, the

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return expectations that people
have and what the industry is

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going to look like in in five
years, in 10 years and beyond

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that.
You know, and in a, like a, a

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theoretical sense, like the
model should should work well

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because you're marrying patient
capital with a, with a, with a

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cyclical kind of uplift, like
there's a cyclical nature to

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commodities businesses.
So like in theory, there's a lot

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of merit to this, this, this
model.

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The actual empirical data of
returns from private equity

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asset class in mining, however,
has been on balance pretty,

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pretty, pretty below average.
Would you agree with that?

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Yeah, look, pretty mixed history
and perhaps we'll get to that.

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You know, performers as we, you
know, the conversation evolves.

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Perhaps a good spot to start is
probably the structure.

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So, you know, you've had lots of
great guests come in, you know,

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fund managers, managers, you
know, long, long only or long

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short public equity funds,
private equity funds set up

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quite different differently.
You know those funds, you know,

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closed end funds, yeah, they
have typically a 10 year

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lifespan where the fund manager
goes out to, you know,

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prospective investors who are
the limited partners.

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Yeah, they ask for capital
commitments and that is

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effectively raising the fund.
Once the funds raise, they have,

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you know, a short amount of time
to deploy.

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It's typically, you know, first
five years of that 10 year fund

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and then they have to distribute
the capital back to the

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investors on the back half of
the fund there as well.

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The investors in the fund will
pay, you know, fees for that

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privilege to be part of that
fund.

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So there's a management fee, you
know, paid, you know, to the

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fund manager.
And there's also a performance

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fee.
You know, if the fund can

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perform above a hurdle rate, you
know, they'll pay a performance

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fee to the fund manager as well.
So it's this fixed time frame

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that probably creates most of
the constraints and where it's,

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you know, most different to, to
other funds that, you know, can

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go in and out of things all the
time, can recycle capital all

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the time.
If you have a private equity

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fund, you know, they're
typically, you know, 5 to 10

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very concentrated investments in
that fund, you know, within 10

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years of the life of that fund.
You know, finding opportunities

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can take a few years.
Executing on the deals can take

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a few years.
You know, seeing the value

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creation and those investments
you know grow and mature, it can

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take more than a few years and
then finding an exit and getting

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liquidity can take a few years
too.

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So it's really hard to get
everything done timing wise, you

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know in that 10 year period and
especially so in mining in

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commodity markets which are
really volatile.

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You know to get one, you know,
to come in at the bottom of the

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cycle and then get your timing
right to exit at the top of that

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cycle and time it perfectly in
that 10 year period is really

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hard.
Yeah, I I couldn't agree more.

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Private equity used to be called
leveraged buyouts and it sort of

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evolved and and changed names.
But the concept came from having

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a small bit of equity, borrowing
a lot of money, taking a company

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private, optimizing how it kind
of runs, operates, you know,

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think of an industrial type
business and then sell it back

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out, IPO it.
But the the model has changed

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massively.
And when we look at private

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equity companies in the mining
space, they don't all have the

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same strategy.
Can you share a bit of detail on

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on what you've kind of picked up
on the on the various types of

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strategies that these PE groups
have?

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Look, fundamentally, what are
these private equity funds

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trying to do?
Well, like everyone on on the

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buy side, they're trying to make
money.

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The target returns for these
funds are typically that, you

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know, two to three times
multiple on invested capital.

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Private equity likes to talk
talk in multiples, you know,

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less so IRR that you know,
public equity markets talk

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about.
And that's probably because you

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know, it's typically in private
markets, it's a long period of

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time.
The investors that that come

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into private equity allocate
into this asset class are

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thinking of it slightly
different to, you know, people

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that are trading on a lot more
regular basis.

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So.
But it invests the time frame.

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That that, that is measured from
the time that the the capital is

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deployed.
So let's say you a fund they

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raise a billion dollars, right
and they've got five years to

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deploy that billion dollars and
they're incrementally doing that

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with different opportunities
that come up.

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Each one of those, like the
multiple invested capital, is

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sort of measured from the point
in time of which.

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There's lots of ways to cut it,
right, Lots of ways to cut it.

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So in private equity, you
typically hear, you know, funds

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or, or managers, Yeah, the fund
managers, core managers, the

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GPS, you know, talk about things
in terms of gross and net.

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So, yeah, the gross multiple is
the multiple from the day you

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make a capital call to your
LP's.

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So you've found this great deal,
you've got a term sheet that's

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ready to go.
You'll make a capital call to

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your LP's so that you can fund
the deal.

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The day that capital comes in,
that capital starts accruing A

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preferred return that the fund
manager is going to have to be

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at the end, and that's the day
these multiples start ticking

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is.
That the same day they start

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also earning a fee.
That's right.

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So the fund manager deployed
funds can start clipping a fee

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there to manage that AUM there.
So as time goes by, eventually

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get towards the exit again, you
sell the business, you're

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waiting for the capital to come
in.

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The capital finally comes back
into the fund.

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The fund can perhaps recycle a
little bit or it can distribute

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it back to the LP.
The day it comes back in, you

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crystallize that investment and
you can see what the gross

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multiple is there.
The net multiple takes out all

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the fees there that the fund
manager clips.

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So you know that management fee
that was, you know, taken along

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the way, perhaps its diligence
costs and things like that.

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So you'll see a spread between
the gross multiple and the net

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multiple.
What's the typical spread

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between the two?
Depends how far you are along in

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in the fund life, you know how
far that preferred returns

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accrued.
But yeah, probably like 20%

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difference.
And just quickly for people

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listening, you've got the GPS
who are the ones that manage the

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money, they invest the capital.
The general partner.

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The fund manager.
And then the LP's are the ones

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that give their money to the
fund, most often the endowments.

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Yep.
The commit, the commitment.

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Yep.
So the limit partner makes this

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commitment.
And you know, limited partners,

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yeah, we'll get to that.
That's changing who they are.

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But typically your pension
funds, endowment funds, et

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cetera, those, those sorts of
groups that, you know, within

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their portfolio, they're
allocating to real assets.

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You know, sometimes there's a
specific bucket for, you know,

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alternative alternative assets
and you know, there's a private

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equity bucket.
But typically for mining PE

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funds, they're sitting in the
real assets bucket.

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You know, where there's, you
know, there might be investments

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in, in, you know, other PE funds
that do infrastructure or just,

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you know, direct investment into
some infrastructure projects as

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well and things like that.
For those LP's, those like

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endowment funds, is the actual
model, like private equity model

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just a very familiar model and
they have like a, you know, a

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kind of a regimented
understanding of like the

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private equity model and then
they're just porting that over

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to to mining sort of expecting
similar.

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Yeah, remember, I mean, PE has
been around generous PEA for a

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long time, you know, multiple
decades.

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Mining PE is probably a newer
thing.

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You know, there's in, in
ballpark numbers, sort of, you

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know, 15,000 or so, you know, PE
funds that you know, aren't

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fully closed, you know, they're
still still out there, right?

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I would say, you know, mining's
probably 40-50 of those.

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And how do you call it mining?
Some do, you know, oil and gas

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and a little bit of mining.
Some are generalist with like 1

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mining investment in the whole
portfolio.

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So depending how you cut it,
maybe there's a few hundred that

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would ultimately do an
investment in natural resources.

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But mining PE is still such a
very small part of the whole PE

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landscape.
So for these asset managers,

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yes, it's a very familiar your
business model and asset class

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for them.
Yeah, mining PE is something

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that's probably more unusual.
Can we talk about the, the, the

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theory of making money in
private equity in mining?

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Is it as simple as like I'm
going to buy something at a

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discount to NAV and then like
that, that asset is going to get

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developed over time and and I'll
be able to sell it at A at a

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lower discount than have or, or
is it about turnarounds?

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Is it, is it a bunch of above?
Is it counter cyclical?

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Lots of different strategies so
that you got that target return

226
00:11:00,280 --> 00:11:03,880
of you know two to three times,
yeah, your money.

227
00:11:04,120 --> 00:11:07,640
So get two to three times
ideally, you know a net Moik

228
00:11:07,960 --> 00:11:11,640
multiple invested capital.
How do you get a get a 2X?

229
00:11:11,640 --> 00:11:14,280
Well, couple of different ways
to do it.

230
00:11:14,880 --> 00:11:18,480
The traditional private equity
model likes to talk about deals

231
00:11:18,480 --> 00:11:20,600
in terms of, you know, growth
value.

232
00:11:21,760 --> 00:11:26,560
Yeah, the growth model, which is
typically in mining is building

233
00:11:26,560 --> 00:11:29,400
a project, you know, projects
that sit in that development.

234
00:11:29,400 --> 00:11:32,320
Sage, you know, the Lausanne
curve just like your logo here,

235
00:11:32,320 --> 00:11:34,600
things have a deep discount.
You know, we're in that

236
00:11:34,600 --> 00:11:37,160
development phase.
And then as they de risk taken

237
00:11:37,160 --> 00:11:40,280
through construction, successful
ramp up, after that we'll get a

238
00:11:40,280 --> 00:11:43,440
rewrite.
You know, depends at which

239
00:11:43,440 --> 00:11:45,280
commodity, which point in time,
which stage you're at.

240
00:11:45,280 --> 00:11:48,080
But generally, you know,
development stage project, you

241
00:11:48,080 --> 00:11:51,520
know, with a study sitting at,
you know, .5 NAV, build the

242
00:11:51,520 --> 00:11:54,720
thing successfully ramp it up.
It should be close to a one

243
00:11:54,720 --> 00:11:57,080
times NAV.
Now you know, that can change

244
00:11:57,080 --> 00:11:59,400
all the time.
But in principle, you know,

245
00:11:59,400 --> 00:12:01,800
that's how you get your 2X
return, you know, provide some

246
00:12:01,800 --> 00:12:05,240
capital to a development stage
project to allow it to be built.

247
00:12:05,360 --> 00:12:07,600
You know, oversee the
construction and the ramp up and

248
00:12:07,600 --> 00:12:10,480
then and then sell it on the
other side and then you get your

249
00:12:10,480 --> 00:12:12,400
2X.
That's your typical growth

250
00:12:12,400 --> 00:12:15,160
strategy and that's I would say
a hard strategy to execute on.

251
00:12:15,520 --> 00:12:17,600
You know, there's lots of things
that can go wrong through

252
00:12:17,600 --> 00:12:20,960
construction ramp up.
We can get to that later, but

253
00:12:20,960 --> 00:12:24,040
it's a pretty hard strategy.
Other strategies, I think you

254
00:12:24,040 --> 00:12:27,040
could broadly turn them sort of
value strategies.

255
00:12:27,920 --> 00:12:30,200
So that could be a turn around
opportunity.

256
00:12:30,360 --> 00:12:33,040
Yeah, that could be an operating
asset, you know that's in the

257
00:12:33,040 --> 00:12:35,840
4th quartile and it's struggling
and you know you need to change

258
00:12:35,840 --> 00:12:38,400
management and you need to
change operating practices and

259
00:12:38,400 --> 00:12:41,400
you can turn it around and you
know change, change the cash

260
00:12:41,400 --> 00:12:46,240
flow significantly there and
then flip it that that can work.

261
00:12:46,920 --> 00:12:50,480
There's a consolidation strategy
where you know, there's M&A to

262
00:12:50,480 --> 00:12:54,080
do, you know, we've got perhaps
stranded, you know, mining

263
00:12:54,080 --> 00:12:55,960
assets without a processing
solution.

264
00:12:56,400 --> 00:13:00,080
Great example, there was sort of
Genesis acquiring lean or assets

265
00:13:00,080 --> 00:13:02,720
from Saint Barbara.
You know Genesis had Ulysses

266
00:13:02,720 --> 00:13:04,400
project at that time.
Yes, St.

267
00:13:04,400 --> 00:13:07,040
Barbara had Gwalia process plan
as well as Gwalia mine.

268
00:13:07,320 --> 00:13:09,720
Yeah, some very logical
synergies there, you know,

269
00:13:09,760 --> 00:13:12,880
putting the ore in a mill,
something as simple as that.

270
00:13:12,880 --> 00:13:16,200
Or it can be more broader, you
know, roll up strategy across a

271
00:13:16,200 --> 00:13:19,720
whole region where there's a lot
of subscale deposits that

272
00:13:19,720 --> 00:13:22,440
collectively could run a hop and
spoke strategy and get it to

273
00:13:22,440 --> 00:13:24,880
achieve critical scale, things
like that.

274
00:13:24,880 --> 00:13:28,320
So that's the, you know,
consolidation strategy there or

275
00:13:28,320 --> 00:13:31,920
roll up strategy that's called
in generalist PA or bolt on.

276
00:13:32,560 --> 00:13:34,840
But you know, I've seen that
work quite a few times.

277
00:13:36,440 --> 00:13:40,800
And I guess there's also the the
Special Situations, you know,

278
00:13:40,800 --> 00:13:44,160
that are quite nuanced and
they're all situations specific.

279
00:13:45,560 --> 00:13:48,200
Those ones are probably harder
to plan a fund around in terms

280
00:13:48,200 --> 00:13:50,800
of, you know, we're going to do
so many of these types of deals

281
00:13:50,800 --> 00:13:53,800
they they come up.
But yeah, all of the different

282
00:13:53,800 --> 00:13:56,440
fund managers will be thinking
about this in a certain way.

283
00:13:56,440 --> 00:13:59,040
Some are thinking, yes, we're
going to focus large, you know,

284
00:13:59,040 --> 00:14:02,400
a portfolio largely on building
projects, provide that

285
00:14:02,400 --> 00:14:05,760
construction financing.
Some others, you know, just

286
00:14:05,760 --> 00:14:08,640
focusing on, you know,
development stage assets, you

287
00:14:08,640 --> 00:14:12,040
know, de risking them, you know,
with more technical work and

288
00:14:12,040 --> 00:14:14,880
then ultimately finding an exit
there too.

289
00:14:14,880 --> 00:14:18,280
So lots of different ways to
still get your two to 3X.

290
00:14:18,320 --> 00:14:23,480
So one of the other ones we've
seen, Fraser, is what Tembo have

291
00:14:23,480 --> 00:14:26,440
done a few times and that's
minority stakes and that that's

292
00:14:26,440 --> 00:14:29,080
a real point of difference
versus traditional PE.

293
00:14:29,080 --> 00:14:31,080
They're not buying the company
outright.

294
00:14:31,480 --> 00:14:35,800
They're taking a, call it maybe
a 20% stake in a, in a public

295
00:14:35,800 --> 00:14:36,400
company.
What?

296
00:14:36,600 --> 00:14:37,600
What do you kind of think of
this?

297
00:14:37,640 --> 00:14:40,120
Point come to mind, yeah.
Orks point another one.

298
00:14:41,200 --> 00:14:44,760
This strikes me as a bit more of
a a more recent revelation.

299
00:14:44,840 --> 00:14:45,600
Equity.
Yeah.

300
00:14:45,600 --> 00:14:50,080
So how do you kind of connect
those dots and think of them in

301
00:14:50,080 --> 00:14:52,160
in the PE context?
Sure.

302
00:14:52,360 --> 00:14:55,440
Yeah.
And that and the strategies can

303
00:14:55,440 --> 00:14:58,600
can be right into the spectrum.
So for example, yeah, some of

304
00:14:58,600 --> 00:15:01,640
those investments I'm familiar
with that Tembo's made are

305
00:15:01,640 --> 00:15:05,160
probably more like a, you know,
public long equity fund, right?

306
00:15:06,080 --> 00:15:08,600
Yeah, they're minority.
They're enlisted vehicles.

307
00:15:08,600 --> 00:15:11,520
They're pretty liquid as well.
They might not necessarily have

308
00:15:11,520 --> 00:15:14,760
a lot of, you know, influence
and control in the investment as

309
00:15:14,760 --> 00:15:18,400
well.
The the challenge is for the

310
00:15:18,400 --> 00:15:20,840
fund manager when they're
raising these, you know, funds,

311
00:15:20,920 --> 00:15:24,040
you know, their pitch to LP's
is, you know, their value add.

312
00:15:24,040 --> 00:15:26,240
And typically that's going to
have a degree of sort of

313
00:15:26,240 --> 00:15:28,680
influence and control in their
investments.

314
00:15:28,680 --> 00:15:30,400
You know, they're not passive
investors.

315
00:15:30,400 --> 00:15:33,440
They're, you know, active
investors that want to be, you

316
00:15:33,440 --> 00:15:37,080
know, on the board inside the
business and having a seat at

317
00:15:37,080 --> 00:15:40,120
the table on a lot operational
strategic decisions.

318
00:15:40,120 --> 00:15:42,640
So yeah, there's, there's a huge
spectrum.

319
00:15:42,640 --> 00:15:45,520
Perhaps we can sort of talk
through the mandate of these

320
00:15:45,520 --> 00:15:49,360
funds and you'll get a sense for
how you know they're different

321
00:15:49,360 --> 00:15:52,080
in terms of the strategies and
and where they allocate to.

322
00:15:52,080 --> 00:15:54,560
What are the what are these?
It's the mandates.

323
00:15:54,560 --> 00:15:57,040
Like just put the when when you
go out and raise a fund, here's

324
00:15:57,040 --> 00:15:59,400
the mandate.
Or do the L, the L, the LP's

325
00:15:59,400 --> 00:16:02,040
themselves actually have like,
you know, you've got to follow

326
00:16:02,040 --> 00:16:04,480
these certain criteria in order
to raise the money in the 1st

327
00:16:04,480 --> 00:16:06,000
place?
Like who dictates this mandate?

328
00:16:06,680 --> 00:16:09,400
The fund manager, when they're
going to raise the fund, this is

329
00:16:09,400 --> 00:16:11,200
the mandate for that specific
fund.

330
00:16:12,560 --> 00:16:15,240
Some managers might have
multiple funds in the market,

331
00:16:15,640 --> 00:16:18,400
you know, different strategies
like a private credit strategy

332
00:16:18,400 --> 00:16:21,200
and a private equity strategy.
So they'll, you know, be very

333
00:16:21,200 --> 00:16:23,760
explicit in these documents as
to what they're going to go

334
00:16:23,760 --> 00:16:24,600
after.
They can and can't do.

335
00:16:24,840 --> 00:16:26,200
Yeah.
So capital position in the

336
00:16:26,200 --> 00:16:27,720
capital structure is a great
one.

337
00:16:27,720 --> 00:16:29,560
Yeah.
Is it going to be focused on

338
00:16:29,560 --> 00:16:33,760
debt and have security there?
Is it going to be subordinated

339
00:16:33,760 --> 00:16:37,240
in the capital structure or is
it going to be equity as well?

340
00:16:37,880 --> 00:16:40,480
Or maybe, you know, there's
going to be a portfolio approach

341
00:16:40,480 --> 00:16:43,960
where, yeah, 1/3 of, you know,
the fund might be this and that

342
00:16:43,960 --> 00:16:45,880
the other.
But that's probably the biggest

343
00:16:45,880 --> 00:16:48,080
point difference is, you know,
where they are going to be in

344
00:16:48,080 --> 00:16:51,880
the capital structure.
You know, groups like Orion,

345
00:16:51,880 --> 00:16:54,960
particularly in their, you know,
mine finance fund, which is the

346
00:16:54,960 --> 00:16:57,360
traditional sort of, yeah,
private equity fund.

347
00:16:57,640 --> 00:16:59,920
Yeah, they're typically
financing projects in the

348
00:16:59,920 --> 00:17:03,040
construction phase and it's
typically debt at that point.

349
00:17:03,240 --> 00:17:05,839
Yes, there are some nice
management teams that like and

350
00:17:05,839 --> 00:17:07,800
they'll go do an equity
investment for part of that

351
00:17:07,800 --> 00:17:09,040
fund.
But, you know, the fund is

352
00:17:09,040 --> 00:17:12,240
largely focused on on debt.
And if they can get a royalty on

353
00:17:12,240 --> 00:17:14,240
the back end, happy days too.
Yeah.

354
00:17:14,400 --> 00:17:16,880
And and look, they're still
targeting similar returns,

355
00:17:16,880 --> 00:17:19,359
right?
There's debt style returns and

356
00:17:19,359 --> 00:17:21,920
equity style returns, but you
know, these debt style returns

357
00:17:21,920 --> 00:17:23,760
are pretty close to equity style
returns.

358
00:17:23,760 --> 00:17:28,280
You're still targeting a 2X, you
know IRS that are in the, you

359
00:17:28,280 --> 00:17:30,520
know, double digits as well,
right?

360
00:17:30,680 --> 00:17:32,760
Well.
You know, in project finance

361
00:17:32,800 --> 00:17:35,920
like generally you're, you're
taking equity like risk because

362
00:17:35,920 --> 00:17:38,240
if the mind doesn't work then.
Yeah, it can.

363
00:17:38,240 --> 00:17:41,040
Be it can be a pretty bad case
for the, for the, for the debt.

364
00:17:41,040 --> 00:17:43,680
I'm saying lots of these, you
know, very exotic structured

365
00:17:43,680 --> 00:17:46,480
term sheets for sort of
preferred equity.

366
00:17:47,440 --> 00:17:51,240
And yeah, lots of bells and
whistles on these term sheets,

367
00:17:51,240 --> 00:17:53,040
but effectively it's a binary
outcome, right?

368
00:17:53,680 --> 00:17:57,680
You know, if it can be built and
and ramped up, yeah, everyone

369
00:17:57,680 --> 00:18:00,680
can get paid, it's great.
But you know, if you have, you

370
00:18:00,680 --> 00:18:03,480
know, CapEx blowout, management
team can't deliver, you don't

371
00:18:03,480 --> 00:18:06,200
get the commodity price
tailwinds you were expecting,

372
00:18:06,680 --> 00:18:08,440
Yeah, it can all blow up pretty
quickly.

373
00:18:08,440 --> 00:18:13,400
So I think it's a full sense of
security depending on, you know,

374
00:18:13,760 --> 00:18:16,120
having this position in the cap
structure.

375
00:18:16,160 --> 00:18:19,040
You know, there's, there's a lot
of examples of, you know,

376
00:18:19,040 --> 00:18:21,320
projects have been financed by
private equity that have been

377
00:18:21,360 --> 00:18:26,000
refinanced, you know, straight
after construction or, or, or or

378
00:18:26,000 --> 00:18:29,880
even later as well.
So yeah, capital structure is a

379
00:18:29,880 --> 00:18:32,040
big one.
Jurisdiction I think is also a

380
00:18:32,040 --> 00:18:34,560
good one to talk about.
You know, you talked about Tembo

381
00:18:34,560 --> 00:18:38,560
and investments here in
Australia with you know, Spartan

382
00:18:38,560 --> 00:18:40,840
Greatland and others.
You know, they're, they're

383
00:18:40,840 --> 00:18:45,080
groups that will solely focus
on, you know, Western mining

384
00:18:45,200 --> 00:18:48,400
friendly supportive
jurisdictions like Australia,

385
00:18:48,400 --> 00:18:51,080
Canada, US.
Cantera is a good example that

386
00:18:51,480 --> 00:18:55,400
exclusively focused on those
places versus other groups that

387
00:18:55,760 --> 00:18:59,760
will have a bigger risk appetite
to go in more difficult

388
00:18:59,760 --> 00:19:02,440
jurisdictions.
You know, to speak to some of

389
00:19:02,440 --> 00:19:05,400
the examples from RCF's
portfolio in the PE fund, I

390
00:19:05,440 --> 00:19:08,400
mean, they're built, you know,
the RG Gold project in

391
00:19:08,400 --> 00:19:12,160
Kazakhstan.
They've been investors in Ozone,

392
00:19:12,600 --> 00:19:15,200
which is in Burkina Faso.
So, you know, I mean, West

393
00:19:15,200 --> 00:19:18,320
Africa to, you know, Central
Asia complete other ends of the

394
00:19:18,320 --> 00:19:21,560
spectrum as well.
So, yeah, that's an important

395
00:19:21,560 --> 00:19:23,920
point.
And and as we get to sort of how

396
00:19:23,920 --> 00:19:26,960
pay is evolving, I do think, you
know, the the jurisdictional

397
00:19:26,960 --> 00:19:29,040
focus is becoming quite
important to some LP's.

398
00:19:29,040 --> 00:19:32,280
They're very focused on, you
know, Western supply chains and

399
00:19:32,560 --> 00:19:35,440
being able to specifically
allocate to that thematic as

400
00:19:35,440 --> 00:19:36,720
well.
We've got to talk about that

401
00:19:36,720 --> 00:19:39,640
later because the interlock with
government these days is a huge

402
00:19:39,640 --> 00:19:42,000
step forward that we've seen in
some of these funds and what

403
00:19:42,000 --> 00:19:44,760
they're doing going forward.
But when we keep going with,

404
00:19:44,760 --> 00:19:47,800
with the mandate, we've kind of
talked about the stage of the

405
00:19:47,800 --> 00:19:49,880
asset, but I think we really
need to dive into this one.

406
00:19:49,880 --> 00:19:52,320
And I'm, I'm curious to hear
what you think, Fraser, about

407
00:19:52,520 --> 00:19:55,800
how this is evolving as well.
Because taking that risk, as we

408
00:19:55,800 --> 00:19:58,360
kind of said for a project that
is going to go into

409
00:19:58,360 --> 00:20:01,680
construction, that's a huge
amount of risk like that is a a

410
00:20:01,880 --> 00:20:04,400
very large.
Step to take.

411
00:20:04,600 --> 00:20:06,760
And that's why I think we've
seen the likes of Quintera say,

412
00:20:06,920 --> 00:20:10,440
hey, we want to take this from
.4 NAV to .6 NAV and and sell

413
00:20:10,440 --> 00:20:11,800
it.
And keep it in development stage

414
00:20:11,960 --> 00:20:14,200
pre FIA that's.
The project, So what what are

415
00:20:14,200 --> 00:20:17,760
the other stages of assets you,
you see and maybe if there's a

416
00:20:17,760 --> 00:20:20,440
few examples that come to mind
that are that are being targeted

417
00:20:20,440 --> 00:20:21,680
out there.
Yeah, sure.

418
00:20:22,080 --> 00:20:24,320
Look there, there are other
strategies that fit into this,

419
00:20:24,320 --> 00:20:28,040
you know, broad PE box of, you
know, taking assets as far as

420
00:20:28,040 --> 00:20:30,880
sort of early stage expiration,
where, again, you know, really

421
00:20:30,880 --> 00:20:34,640
like the exploration team, their
their history and you know, the

422
00:20:34,680 --> 00:20:37,440
the package they've put together
and you know, the targets

423
00:20:37,440 --> 00:20:39,640
they're showing.
So, you know, RCF had a strategy

424
00:20:39,640 --> 00:20:42,040
called the RCF opportunities
fund that, you know, did

425
00:20:42,040 --> 00:20:45,240
allocate to things as early as
that and then more advanced.

426
00:20:45,840 --> 00:20:48,760
You've then got, you know,
strategies that focus on those

427
00:20:48,760 --> 00:20:50,840
development stage assets, you
know, finding things that are

428
00:20:50,840 --> 00:20:53,040
pre study that that look
promising that, you know, it's

429
00:20:53,040 --> 00:20:57,000
quite simple to do a study or
take it from say a PFS study all

430
00:20:57,000 --> 00:21:00,080
the way to FID and do a lot of
the heavy lifting there on, you

431
00:21:00,080 --> 00:21:05,040
know, DFS feed work.
Getting, you know, engineering

432
00:21:05,080 --> 00:21:07,800
companies engaged quite early
and taking it through

433
00:21:07,800 --> 00:21:10,560
permitting, you know, removing a
lot of the big overhangs that

434
00:21:10,640 --> 00:21:12,760
that follow with the development
stage project.

435
00:21:12,920 --> 00:21:15,480
And, and one of the big things
here, right, is the signalling

436
00:21:15,480 --> 00:21:17,680
that comes from future
investment, because mining is

437
00:21:17,680 --> 00:21:21,640
such a capital hungry industry
that if you take it from A to B,

438
00:21:21,840 --> 00:21:24,000
but then say you're no longer
going to going to fund it, what

439
00:21:24,000 --> 00:21:25,560
is that kind of signal to the
market?

440
00:21:25,560 --> 00:21:28,960
So you're actually on the hook
to to continue in in certain

441
00:21:28,960 --> 00:21:31,600
cases the the check writing.
Yeah.

442
00:21:31,640 --> 00:21:35,960
Look, speaking from experience,
I think that strategy on taking

443
00:21:35,960 --> 00:21:38,640
things through early stage
development to FRD is a hard

444
00:21:38,640 --> 00:21:41,200
one.
You're probably more reliant on,

445
00:21:41,240 --> 00:21:45,040
you know, commodity tailwinds in
general, you know, hype around

446
00:21:45,040 --> 00:21:48,880
the commodity that that gives
you liquidity and and drives

447
00:21:48,880 --> 00:21:51,440
your returns there.
You know, this is the real heavy

448
00:21:51,440 --> 00:21:54,480
lifting work that you'd
typically see someone do it if

449
00:21:54,600 --> 00:21:59,880
it was a pathway to building it.
Yes, it's so companies in that

450
00:21:59,880 --> 00:22:02,920
development stage and they can
run an equity check, the PA fund

451
00:22:02,920 --> 00:22:05,040
can run an equity check early
that they'll fund that de

452
00:22:05,040 --> 00:22:06,920
risking and get it to investment
decision.

453
00:22:07,320 --> 00:22:09,720
And then they've got a seat at
the table to be in, you know,

454
00:22:09,720 --> 00:22:12,760
prime position to provide
financing to construct it as

455
00:22:12,760 --> 00:22:15,400
well.
So I think, you know, just using

456
00:22:15,840 --> 00:22:19,160
the development stage and the
valuation is quite an attractive

457
00:22:19,160 --> 00:22:22,640
entry point to set yourself up
for follow on funding as it goes

458
00:22:22,640 --> 00:22:25,400
through, you know, construction
and then start to play a little

459
00:22:25,400 --> 00:22:27,200
bit higher across the capital
structure.

460
00:22:27,440 --> 00:22:29,320
You know, bring in other Co
investors as well.

461
00:22:29,320 --> 00:22:32,760
It's really a way of having
somewhat, somewhat of

462
00:22:32,880 --> 00:22:35,840
exclusivity on, yeah, the
project financing piece, which

463
00:22:35,840 --> 00:22:38,440
might be, you know, bigger, more
meaningful for the PE fund

464
00:22:38,440 --> 00:22:39,600
there.
Yeah.

465
00:22:39,600 --> 00:22:45,000
And, and when these groups think
about diversification across the

466
00:22:45,000 --> 00:22:48,280
fund, I'm really curious to hear
your thoughts because you might

467
00:22:48,280 --> 00:22:51,440
get some that are targeting
critical minerals or Western

468
00:22:51,440 --> 00:22:53,600
minerals, but the, the
correlation between some of

469
00:22:53,600 --> 00:22:56,560
these tends to be much higher.
So what have you kind of learned

470
00:22:56,560 --> 00:23:02,240
from how the PE group spread
their bets across different, you

471
00:23:02,240 --> 00:23:04,560
know, asset types against
different commodities against

472
00:23:04,560 --> 00:23:07,960
different jurisdictions within a
fund to make sure that they're

473
00:23:07,960 --> 00:23:10,080
not all betting on the same one
thing?

474
00:23:11,160 --> 00:23:14,520
Yeah, that, I mean portfolio
allocation and particularly how,

475
00:23:14,560 --> 00:23:16,600
you know, you think about
commodity strategy is, is

476
00:23:16,600 --> 00:23:19,320
absolutely critical, I think to
having sort of, you know, a

477
00:23:19,320 --> 00:23:23,200
fairly diversified, you know,
portfolio and, and something

478
00:23:23,200 --> 00:23:24,600
that can deliver through the
cycle.

479
00:23:24,600 --> 00:23:30,000
Look, I haven't seen any
specific, you know, language in,

480
00:23:30,000 --> 00:23:32,400
in, in mandates and and
strategy, but I think everyone's

481
00:23:32,400 --> 00:23:34,200
thinking the same way.
You know, commodities that are

482
00:23:34,200 --> 00:23:37,960
really volatile.
Yeah, are are really hard to to

483
00:23:37,960 --> 00:23:39,800
build, right?
Yeah.

484
00:23:39,840 --> 00:23:42,680
If you know, if it takes, you
know, quite a few years to, you

485
00:23:42,680 --> 00:23:45,720
know, finance a project, build
it, ramp it up and you're in a

486
00:23:45,720 --> 00:23:48,520
volatile commodity like lithium,
you know, you might miss your

487
00:23:48,520 --> 00:23:53,360
window to exit that and and
you're in a 10 year fund, you

488
00:23:53,360 --> 00:23:55,440
might not have another window
there as well.

489
00:23:55,440 --> 00:23:59,680
So for really volatile
commodities, you know, you think

490
00:23:59,680 --> 00:24:03,920
lithium, you know, tin and other
things like that, perhaps, you

491
00:24:03,920 --> 00:24:06,160
know, having, you know, an
equity strategy, you know,

492
00:24:06,200 --> 00:24:10,960
pretty like small minority stake
in a listed vehicle might be a

493
00:24:10,960 --> 00:24:13,360
better way to play that because
you can go in and out quite

494
00:24:13,360 --> 00:24:15,480
quickly.
Yeah.

495
00:24:15,480 --> 00:24:19,000
Look, I mean, RCF made an
investment in Pilgrim Minerals

496
00:24:19,000 --> 00:24:23,440
when it acquired Altura Lithium.
It's operation there that was

497
00:24:23,440 --> 00:24:28,320
from memory seven 8% equity
investment in a public company.

498
00:24:28,640 --> 00:24:32,280
When lithium ran straight after
that, in a very short amount of

499
00:24:32,280 --> 00:24:34,840
time, it was a pretty liquid
investment that they could exit.

500
00:24:36,000 --> 00:24:41,040
If you were to be building a new
project, say, yeah, in theory it

501
00:24:41,040 --> 00:24:43,520
was another lithium mine and he
provided debt at the same time,

502
00:24:43,960 --> 00:24:47,120
you know, it would have just
started to repay that debt just

503
00:24:47,200 --> 00:24:50,480
as lithium had created, you
know, two years after that, and

504
00:24:50,480 --> 00:24:53,520
you'd probably be refinancing
that or, you know, it could

505
00:24:53,520 --> 00:24:57,320
potentially be bankrupt as well.
So getting the strategy right

506
00:24:57,320 --> 00:24:58,960
for the commodity is really
important.

507
00:25:00,480 --> 00:25:01,600
Yeah.
We haven't touched on it all,

508
00:25:01,600 --> 00:25:05,120
but these returns are all
generally driven by commodity

509
00:25:05,120 --> 00:25:07,560
price tailwinds.
You've got to have some support

510
00:25:07,560 --> 00:25:09,720
there from the commodity.
And that a big piece is just,

511
00:25:10,120 --> 00:25:12,240
you know, having a strong view
on the fundamentals of that

512
00:25:12,240 --> 00:25:14,600
commodity over, you know, the
whole period, whether that's

513
00:25:14,600 --> 00:25:17,080
sort of, you know, three to five
years that you're going to be in

514
00:25:17,080 --> 00:25:19,120
a better position there from the
commodity wise.

515
00:25:19,120 --> 00:25:23,640
So if things like CapEx blow
out, you know, management don't

516
00:25:23,640 --> 00:25:26,080
work, you know, if those things
move against you, at least

517
00:25:26,080 --> 00:25:27,880
you've got something that might,
might.

518
00:25:28,600 --> 00:25:30,480
So you get close to a 1X.
Yeah.

519
00:25:30,800 --> 00:25:32,720
And that's why I like I
challenge the merit of a

520
00:25:32,720 --> 00:25:35,760
diversified commodity fund.
Like in some respects, like you

521
00:25:35,760 --> 00:25:38,480
have a small number of
commodities that you're bullish

522
00:25:38,480 --> 00:25:41,720
on in that window of time.
Like you're that's right.

523
00:25:41,720 --> 00:25:44,240
You're not going to like if
it's, if you're only bullish on

524
00:25:44,240 --> 00:25:47,400
gold and copper and and call it
and one other commodity in that

525
00:25:47,760 --> 00:25:50,080
like in the five years you have
to deploy it like you don't want

526
00:25:50,080 --> 00:25:52,480
to making sure you've got
diversity of everything because

527
00:25:52,480 --> 00:25:54,760
something it's a cyclical
industry you're trying to ride.

528
00:25:54,840 --> 00:25:57,480
Yeah, and and you and, and
that's your pitch, right, You

529
00:25:57,480 --> 00:26:00,920
know, Yeah, the fund manager in
in this mining PE fund is a

530
00:26:00,920 --> 00:26:03,200
specialist in this commodity.
They've got, you know, a lot of

531
00:26:03,200 --> 00:26:04,600
deep insight in these
commodities.

532
00:26:04,600 --> 00:26:07,680
So they're making very
concentrated targeted

533
00:26:07,720 --> 00:26:09,240
investments for these
commodities.

534
00:26:10,160 --> 00:26:15,400
Yeah, RCFS fund seven, yeah,
fund in the P fund there.

535
00:26:15,400 --> 00:26:18,680
I mean that had three major gold
investments.

536
00:26:18,680 --> 00:26:20,640
I think, you know, would have
been close to half their

537
00:26:20,640 --> 00:26:23,200
portfolio would have been
allocated to gold at one point.

538
00:26:23,200 --> 00:26:25,480
And you know, look where the
gold price has gone.

539
00:26:25,480 --> 00:26:28,360
That's been a fantastic bet for
them in that regard.

540
00:26:29,320 --> 00:26:32,680
So you're allocating accordingly
to how strong your views are on

541
00:26:32,680 --> 00:26:36,640
the commodities is critical.
Some other funds, you know, do

542
00:26:36,640 --> 00:26:39,280
like to, you know, their returns
are driven more by that rewrite

543
00:26:39,280 --> 00:26:42,720
through construction.
So they'll be not agnostic to

544
00:26:42,720 --> 00:26:44,920
the commodity, but they'll
happily do industrial minerals.

545
00:26:45,520 --> 00:26:49,240
And there's some examples there,
Orion's, you know, funded, you

546
00:26:49,240 --> 00:26:53,800
know, construction for projects
in salt and gypsum there,

547
00:26:53,960 --> 00:26:57,640
mineral sands as well.
So again, commodities where you

548
00:26:57,640 --> 00:27:00,160
probably see, you know, less
huge tailwinds there.

549
00:27:00,160 --> 00:27:02,960
But you know, if the
construction, you know, goes

550
00:27:02,960 --> 00:27:05,760
well on time, on budget, you
ramp up, you can still get your

551
00:27:05,760 --> 00:27:08,680
return there from that rewrite.
You don't necessarily have to

552
00:27:08,680 --> 00:27:11,400
have these, you know, phenomenal
commodity price tailwinds as

553
00:27:11,400 --> 00:27:13,240
well.
Trav, you know what private

554
00:27:13,240 --> 00:27:15,520
equity loves?
They love an easy win.

555
00:27:15,520 --> 00:27:20,360
They love being able to goose
that IRR with a nice easy win,

556
00:27:20,640 --> 00:27:23,960
be it a producing asset or a
development stage project.

557
00:27:24,080 --> 00:27:25,360
And I've got a little one that
comes to mind.

558
00:27:25,360 --> 00:27:27,600
I'm curious if you're thinking
the same thing when it comes to

559
00:27:27,800 --> 00:27:29,840
mining private equity?
Easy win.

560
00:27:29,840 --> 00:27:32,720
Swap out your ground support
regime or whatever was in the

561
00:27:32,720 --> 00:27:35,680
spreadsheet before, be it
development or otherwise, and

562
00:27:35,680 --> 00:27:39,200
put in Sandy ground support, the
biggest turn around optimizer

563
00:27:39,200 --> 00:27:41,720
you could ever think of.
Because Sandy Ground support the

564
00:27:41,720 --> 00:27:45,440
reliability mate, the the cost
efficiency, the, the, the

565
00:27:45,440 --> 00:27:48,760
ability for it to be customized
to whatever your operation is.

566
00:27:49,080 --> 00:27:52,120
The the short timelines it takes
to get to you from from whatever

567
00:27:52,120 --> 00:27:53,880
manufacturing facility there is
globally.

568
00:27:54,080 --> 00:27:56,840
The ability to speak with
wonderful people like Derek,

569
00:27:56,840 --> 00:27:59,560
Kurt and the Sammy Ground
support team all over the globe.

570
00:28:00,720 --> 00:28:02,400
It's it's a no brainer for a
project uplift.

571
00:28:02,440 --> 00:28:05,120
Money miners out there, rest
assured, Travis and I have

572
00:28:05,160 --> 00:28:08,320
actually gone and done a bit of
DD on our very own Sandvik

573
00:28:08,320 --> 00:28:10,200
ground support.
We've seen them galvanized the

574
00:28:10,200 --> 00:28:13,520
equipment out at sight.
So we know first hand that it's

575
00:28:13,520 --> 00:28:15,880
great quality.
It's going to save you money in

576
00:28:15,880 --> 00:28:20,040
the long run, so go buy yourself
a Christmas gift, put an order

577
00:28:20,040 --> 00:28:23,000
in for Sandvik Ground Support
and make your and the team at

578
00:28:23,000 --> 00:28:24,320
Sandvik Ground Supports
Christmas.

579
00:28:24,800 --> 00:28:26,840
I'm galvanizing my Christmas
presents this year.

580
00:28:28,400 --> 00:28:30,440
Another no brainer.
Go Sandvik.

581
00:28:30,600 --> 00:28:33,800
Thanks Sandvik Ground support.
To the point of concentration, I

582
00:28:33,800 --> 00:28:36,680
think it would be the perfect
time to speak about incentives

583
00:28:36,680 --> 00:28:39,800
because as you know, they they
drive almost everything and

584
00:28:40,200 --> 00:28:43,440
there are so many different kind
of incentives from the different

585
00:28:43,440 --> 00:28:47,600
parties involved here, but
they're a huge driver of the way

586
00:28:47,600 --> 00:28:52,240
these PE funds act.
So can you break down management

587
00:28:52,400 --> 00:28:56,000
fees, performance fees and then
we can kind of get into to how

588
00:28:56,000 --> 00:28:57,720
these shape the behaviors?
Sure.

589
00:28:58,480 --> 00:29:00,640
Well, look, most, most all PE
funds will have a management

590
00:29:00,640 --> 00:29:02,400
fee.
You know, that's to keep the

591
00:29:02,400 --> 00:29:04,480
lights on, pay staff.
And it's probably no different

592
00:29:04,720 --> 00:29:08,960
to other, you know, managed, you
know, public equity funds as

593
00:29:08,960 --> 00:29:11,040
well.
So you know that, that that's

594
00:29:11,040 --> 00:29:13,840
salaries, you know, typically
2%.

595
00:29:13,840 --> 00:29:16,000
We're starting to see that come
down for some newer funds.

596
00:29:16,000 --> 00:29:18,320
You know, maybe it's 1 1/2
percent of, you know, assets

597
00:29:18,320 --> 00:29:20,680
under management.
And that's, you know, those fees

598
00:29:20,680 --> 00:29:23,240
accrue on capital that you've
called from the investors as

599
00:29:23,240 --> 00:29:25,320
well.
Doesn't start day one stays,

600
00:29:25,360 --> 00:29:26,960
starts the time they start
coming in.

601
00:29:26,960 --> 00:29:28,680
And if you distribute the
capital back, you know, you're

602
00:29:28,680 --> 00:29:30,240
not accruing fees on that as
well.

603
00:29:30,720 --> 00:29:32,640
So that's, that's pretty par for
the course.

604
00:29:32,880 --> 00:29:35,840
The real incentive in the
private equity model is the

605
00:29:35,840 --> 00:29:38,640
performance fee.
So that fund manager, you know,

606
00:29:38,640 --> 00:29:42,640
that is that is the huge
leverage they have is, is

607
00:29:42,640 --> 00:29:45,280
getting the performance fee if
the investment goes right.

608
00:29:45,640 --> 00:29:48,400
So you know, that is a
performance fee.

609
00:29:48,680 --> 00:29:52,760
It's typically, you know, a
large percent of you know,

610
00:29:52,760 --> 00:29:55,440
profits above a hurdle rate. 2
and 20 the prevailing.

611
00:29:55,440 --> 00:29:57,720
Model that's, that's typically
what it's been, but again, it's,

612
00:29:58,080 --> 00:30:00,200
you know, it can change.
It's very, you know, it's

613
00:30:00,200 --> 00:30:02,360
confidential amongst all, all
the different funds.

614
00:30:02,680 --> 00:30:04,960
But you know, you know, there is
some pushback now.

615
00:30:04,960 --> 00:30:08,360
I think, you know, there's yeah,
that's been a traditional model,

616
00:30:08,360 --> 00:30:11,960
but a lot of investors are
starting to push back on that

617
00:30:11,960 --> 00:30:16,040
and, and funds are, you know,
managers are starting to offer a

618
00:30:16,040 --> 00:30:18,520
slightly lower fees in some
places as well.

619
00:30:18,840 --> 00:30:21,000
But yes, typically the
performance fee is, you know,

620
00:30:21,000 --> 00:30:24,160
around 20% of, you know, profits
above the hurdle rate.

621
00:30:24,880 --> 00:30:26,640
So that what's the typical
hurdle?

622
00:30:26,640 --> 00:30:30,040
Rate.
Probably 7-8 percent, something

623
00:30:30,040 --> 00:30:35,880
like that.
So the GP, the fund managed

624
00:30:35,880 --> 00:30:38,960
there, is really incentivized to
do 2 things, get a great

625
00:30:38,960 --> 00:30:43,080
multiple and get it really
quickly and distribute that

626
00:30:43,080 --> 00:30:46,720
capital, you know, quickly back,
back to the LP there.

627
00:30:47,200 --> 00:30:51,480
Ultimately, the PE fund manager
is in the game of distributing

628
00:30:51,480 --> 00:30:52,920
capital.
They're raising capital with

629
00:30:52,920 --> 00:30:56,040
these funds and distributing it,
you know, ideally as fast as you

630
00:30:56,040 --> 00:30:59,480
can.
Those that have been successful

631
00:30:59,480 --> 00:31:03,200
in raising lots of funds and
having a lot of longevity in the

632
00:31:03,200 --> 00:31:05,800
industry, I think aren't
necessarily focused on the

633
00:31:05,800 --> 00:31:08,120
perfect outcome, getting the
highest multiple.

634
00:31:08,520 --> 00:31:10,040
It's all about providing
liquidity.

635
00:31:10,040 --> 00:31:13,240
So you know, you might be
leaving something on the table,

636
00:31:13,240 --> 00:31:17,200
but you know, finding an exit
or, or taking the exit if it's

637
00:31:17,200 --> 00:31:19,120
on the table and there's
liquidity there and, and

638
00:31:19,120 --> 00:31:22,200
providing distribution back to
LP's is really important.

639
00:31:22,200 --> 00:31:28,440
So time, time is everything and
you really do have to, you know,

640
00:31:28,440 --> 00:31:32,880
work hard to get there.
So that's what motivates the

641
00:31:32,880 --> 00:31:35,680
fund manager.
You know, people who sit inside,

642
00:31:35,800 --> 00:31:38,960
you know the the fund manager
who might have carry, that's

643
00:31:39,080 --> 00:31:42,520
generally, you know most senior
people, you know there might be

644
00:31:42,640 --> 00:31:44,440
having carry.
Is exposure to that 20%

645
00:31:44,440 --> 00:31:45,400
performance?
That's right.

646
00:31:45,400 --> 00:31:47,520
Yeah.
So the fund manager, you know,

647
00:31:47,600 --> 00:31:49,760
contributes to the fund and
that's what aligns them.

648
00:31:50,080 --> 00:31:52,400
So in the, in the 2 and 20
model, you know, they'll

649
00:31:52,600 --> 00:31:56,640
contribute 2% of the capital
into that fund so that that's

650
00:31:56,640 --> 00:31:59,720
their skin in the game.
Effectively, it's the leverage

651
00:31:59,720 --> 00:32:02,440
they'll get from the performance
fee on the way back.

652
00:32:02,440 --> 00:32:05,760
If assuming, you know, there's
some nuances to it, but assuming

653
00:32:05,760 --> 00:32:10,400
the fund has a 2X and, and, and
it's all paying carry above this

654
00:32:10,400 --> 00:32:14,600
hurdle rate that, you know, 2%
of capital that that came in,

655
00:32:14,640 --> 00:32:17,880
you know, is effectively A10 X
for the carry holders there,

656
00:32:17,880 --> 00:32:20,840
right?
So huge leverage for them if it

657
00:32:20,840 --> 00:32:23,640
goes well.
On the contrary, if it doesn't

658
00:32:23,640 --> 00:32:26,120
go well, you know, they've put
capital into the fund and mine

659
00:32:26,120 --> 00:32:28,360
don't actually see a return on
it as well.

660
00:32:28,360 --> 00:32:32,000
So that is, you know, the
model's way of aligning, you

661
00:32:32,000 --> 00:32:36,360
know, the fund manager to the
LP's in there and incentivizing

662
00:32:36,360 --> 00:32:38,840
them with this huge leverage,
you know, to make it go well.

663
00:32:39,640 --> 00:32:43,120
Can I, can I peel into some
parts of that model a little bit

664
00:32:43,120 --> 00:32:46,960
too?
So, so the 2% that is like the

665
00:32:46,960 --> 00:32:50,320
management fee and and that gets
that gets triggered from the

666
00:32:50,320 --> 00:32:52,200
point that the the capital call
happens.

667
00:32:52,960 --> 00:32:56,320
But that's 2% on funds deployed,
not not mark to market of what

668
00:32:56,320 --> 00:32:58,480
whatever the portfolio is worth
at that at any point in time

669
00:32:58,480 --> 00:33:00,960
because you can't mark to market
in a liquid mine that didn't

670
00:33:00,960 --> 00:33:01,520
work.
Cost based.

671
00:33:01,720 --> 00:33:03,320
Cost based?
Cost based.

672
00:33:03,440 --> 00:33:07,080
Cool.
And so, you know, are, are there

673
00:33:07,360 --> 00:33:10,800
some cases where like a, a fund
might might have existed or

674
00:33:10,800 --> 00:33:12,920
whatnot and there's a few things
in the portfolio that went pear

675
00:33:12,920 --> 00:33:16,160
shaped, but but because and so
there's no chance of getting any

676
00:33:16,160 --> 00:33:20,200
carry, but there's but there's
no real incentive to not exit

677
00:33:20,200 --> 00:33:21,120
the portfolio.
Because it's.

678
00:33:21,320 --> 00:33:24,720
Still still kind of 2% being
paid on a, on a much higher, you

679
00:33:24,720 --> 00:33:28,120
know, number than than and just
get like a zombie fund that's

680
00:33:28,120 --> 00:33:29,560
out there.
Yeah, whether it's intention or

681
00:33:29,560 --> 00:33:32,840
not a different question.
But you know, finding liquidity

682
00:33:32,840 --> 00:33:37,560
for, yeah, private companies and
some of the niche commodities in

683
00:33:37,560 --> 00:33:39,480
far-flung places can be
difficult, right.

684
00:33:39,840 --> 00:33:42,320
So, you know, you can't
necessarily just, you know, go

685
00:33:42,320 --> 00:33:45,000
to market and sell these and
find an exit whenever you want.

686
00:33:45,720 --> 00:33:47,520
You might have a very small
window and you might have to do

687
00:33:47,520 --> 00:33:51,120
a lot of work to get there.
So they inevitably sit there.

688
00:33:51,120 --> 00:33:55,200
And yes, there is a management
fee being like a crude on on

689
00:33:55,200 --> 00:33:58,080
these on these investments that
sit inside the funds.

690
00:33:58,080 --> 00:34:01,240
So again, makes it really hard
for the fund manager to try and

691
00:34:01,240 --> 00:34:04,600
catch up on that.
Yeah, there is, you know.

692
00:34:05,640 --> 00:34:08,400
That's that's one of the
interesting incentive like

693
00:34:08,400 --> 00:34:09,600
things I can see about the
model.

694
00:34:09,600 --> 00:34:11,199
Another interesting incentive.
I've got two more of these.

695
00:34:11,199 --> 00:34:12,840
Another interesting incentive
thing I can see is like.

696
00:34:13,120 --> 00:34:14,199
It's an issue.
I agree.

697
00:34:14,320 --> 00:34:16,080
It's, you know, it could be
abused.

698
00:34:17,199 --> 00:34:18,280
Or just something to be aware
of.

699
00:34:18,800 --> 00:34:22,080
There's another one is like the
the motivation to deploy very

700
00:34:22,080 --> 00:34:23,880
quickly.
Like if you're, you know, like,

701
00:34:23,920 --> 00:34:26,600
because you're like, I think
like I think of the, the

702
00:34:26,600 --> 00:34:28,360
Quintero example as a, as a
great one.

703
00:34:28,480 --> 00:34:31,440
What what amazing motivation
there is to deploy dry dry

704
00:34:31,440 --> 00:34:35,239
powder as a as a freshly raised
PE fund because you start.

705
00:34:35,639 --> 00:34:38,280
Yeah, big management fees mean
you can, you know, build out

706
00:34:38,480 --> 00:34:41,639
your own team, you can assess
more opportunities, you know,

707
00:34:41,639 --> 00:34:44,639
you build out the platform and
the capabilities of the fund

708
00:34:44,639 --> 00:34:46,600
manager itself.
Because you often see the next

709
00:34:46,600 --> 00:34:48,639
raise within a couple years as
well.

710
00:34:48,639 --> 00:34:51,040
And the faster you deploy and if
nothing went pear shaped, then

711
00:34:51,040 --> 00:34:54,320
you can you can raise another
fund before you have something

712
00:34:54,320 --> 00:34:56,159
in the portfolio that went pear
shaped, if you know what I mean

713
00:34:56,159 --> 00:34:56,760
as well.
So like.

714
00:34:57,080 --> 00:35:00,120
Cantera's Fund 2 was less than
two years after Fund one.

715
00:35:00,440 --> 00:35:03,120
Yeah, that, that's right.
I mean, if you can get momentum,

716
00:35:03,120 --> 00:35:06,120
I think as a fund manager,
that's a great way to set up,

717
00:35:06,200 --> 00:35:07,640
you know, it's a sustainable
business.

718
00:35:07,640 --> 00:35:12,280
Or give yourself a lot of
runway, you know, to to stay in

719
00:35:12,280 --> 00:35:14,160
the game, right?
Yeah, because there's going to

720
00:35:14,160 --> 00:35:17,960
be a lot of bumps along the way.
And the last, the last kind of

721
00:35:17,960 --> 00:35:21,400
incentive thing that I, I wanted
to raise was, so you've got five

722
00:35:21,400 --> 00:35:24,040
years to deploy right now.
When that five years typically

723
00:35:24,160 --> 00:35:26,440
is is approaching and you
actually haven't fully deployed

724
00:35:26,440 --> 00:35:30,080
the fund, then like have you
heard stories of, do you ever

725
00:35:30,080 --> 00:35:35,560
observe like PE groups like that
that may have actually, they may

726
00:35:35,560 --> 00:35:37,400
have just like, you know, there
might have been some asset that

727
00:35:37,400 --> 00:35:39,640
was financeable, but it'd been
kicked around a very long time

728
00:35:39,680 --> 00:35:43,160
and then because because the the
the window was closing, you

729
00:35:43,200 --> 00:35:44,840
know.
I can't think of any examples.

730
00:35:45,640 --> 00:35:49,400
I can think of some other
examples or funds that know of

731
00:35:49,400 --> 00:35:51,000
where you know it wasn't fully
deployed.

732
00:35:51,280 --> 00:35:53,560
Yeah, which is not an issue at
all.

733
00:35:54,080 --> 00:35:56,720
It, it just means when you go to
market to raise your next fund,

734
00:35:56,720 --> 00:35:59,280
they'll say, yeah, how much did
you deploy from your last one?

735
00:35:59,280 --> 00:36:01,600
You say, well, we only deployed
80%, so it makes it hard to

736
00:36:01,600 --> 00:36:04,920
raise a bigger fund.
It's all about, yeah, can you

737
00:36:04,920 --> 00:36:08,080
fully deploy capital for this
particular strategy?

738
00:36:08,680 --> 00:36:11,560
As a function of the the
opportunities that are out there

739
00:36:11,560 --> 00:36:13,280
as well.
Yeah, time in the market, that's

740
00:36:13,280 --> 00:36:14,840
right.
And you risk appetite.

741
00:36:14,840 --> 00:36:19,480
So yes, there's incentives from
the fund manager to to, to fully

742
00:36:19,480 --> 00:36:22,360
deploy the fund regardless of,
you know, the quality of

743
00:36:22,720 --> 00:36:24,920
investments there.
But, you know, you want them to

744
00:36:24,920 --> 00:36:26,760
be incentivized by that
performance fee.

745
00:36:28,200 --> 00:36:30,040
And then coming back to
incentives, generally, I think

746
00:36:30,040 --> 00:36:32,640
if they're, you know, first time
fund manager, you know, they're

747
00:36:32,640 --> 00:36:35,600
there to make it, you know,
they're personally incentivized.

748
00:36:36,440 --> 00:36:41,400
You know, it's not like, you
know, they're made per SE and

749
00:36:42,000 --> 00:36:44,120
somewhat of a, you know, a
lifestyle.

750
00:36:45,200 --> 00:36:47,720
Yeah, those are the ones, if I
was investing in a pay fund,

751
00:36:47,720 --> 00:36:50,720
that's what I would be looking
for, you know, someone who's

752
00:36:50,720 --> 00:36:53,960
personally, you know, got the
most to gain than anyone else,

753
00:36:53,960 --> 00:36:57,520
right.
And it, it's an important thing,

754
00:36:58,280 --> 00:37:01,120
you know, LP's coming to funds
do a lot of diligence on the

755
00:37:01,120 --> 00:37:04,240
fund manager themselves.
You know, even before there

756
00:37:04,240 --> 00:37:07,560
might be a portfolio of, you
know, pipeline investments that

757
00:37:07,560 --> 00:37:10,880
they can show, a lot of it's
focused on track record and you

758
00:37:10,880 --> 00:37:13,960
know, the capabilities of, you
know, the key people in in the

759
00:37:13,960 --> 00:37:16,560
fund.
I think there's a good reason

760
00:37:16,560 --> 00:37:20,200
why Buffett set no management
fee and a higher performance fee

761
00:37:20,200 --> 00:37:22,840
because he was pretty aware of
these things back in the day.

762
00:37:23,400 --> 00:37:25,280
There's one more incentive I do
want to talk about though, and

763
00:37:25,280 --> 00:37:30,240
that is of the endowments.
So we spoke about them

764
00:37:30,720 --> 00:37:35,320
allocating a small slither of
the, the massive amounts of

765
00:37:35,320 --> 00:37:38,600
money that they have and could
be super funds here in

766
00:37:38,600 --> 00:37:40,440
Australia.
But we, we like to think of the,

767
00:37:40,600 --> 00:37:43,480
the universities and other
endowments in, in the States.

768
00:37:43,880 --> 00:37:47,560
And I'd love you just to share a
bit more color on how they might

769
00:37:47,560 --> 00:37:51,440
think about allocating to, to
mining it being maybe a slither

770
00:37:51,440 --> 00:37:54,960
of an allocation that goes
towards private assets and a

771
00:37:54,960 --> 00:37:59,120
slither of that is onwards pass
to real asset investments, you

772
00:37:59,120 --> 00:38:01,360
know, commodity related type
things.

773
00:38:01,400 --> 00:38:04,440
And maybe the incentive that
they have for it to be a private

774
00:38:04,440 --> 00:38:06,640
asset that's not always going to
get marked.

775
00:38:06,640 --> 00:38:08,920
It's not going to get marked on
a, on a daily basis.

776
00:38:08,920 --> 00:38:11,520
It's much steadier in the
portfolio to make their, but

777
00:38:11,720 --> 00:38:13,960
returns look more balanced, at
least for a period of time.

778
00:38:15,240 --> 00:38:19,280
Well, Kevin, just saying no, no
expert on on this subject.

779
00:38:19,280 --> 00:38:22,400
This is all, you know,
secondhand not haven't been yet

780
00:38:22,400 --> 00:38:25,960
spending a lot of FaceTime with
with those sorts of asset

781
00:38:25,960 --> 00:38:28,440
managers.
But what I could say is that,

782
00:38:28,560 --> 00:38:31,840
you know, they, most of them
don't understand mining.

783
00:38:32,720 --> 00:38:36,040
You know, in terms of finding
those that understand mining,

784
00:38:36,640 --> 00:38:39,600
that's quite rare.
So a big part of the the

785
00:38:39,600 --> 00:38:42,360
marketing of the PE fund is
probably just educating, you

786
00:38:42,360 --> 00:38:45,600
know, these LP's on why they
should allocate to natural

787
00:38:45,600 --> 00:38:49,400
resources and commodities.
So that that is a big piece.

788
00:38:49,880 --> 00:38:52,720
The second piece is those that
do understand commodities.

789
00:38:54,000 --> 00:39:00,960
Yeah, still, you know, need
still pretty simplistic in

790
00:39:00,960 --> 00:39:05,520
their, in their approach there.
You know, all these PE funds in,

791
00:39:05,520 --> 00:39:08,240
in mining have, you know, quite
nuanced and, and diverse

792
00:39:08,240 --> 00:39:11,680
approaches.
So you know, they're receptive

793
00:39:11,680 --> 00:39:14,280
to to all of these and they're
probably going to allocate to 1,

794
00:39:14,280 --> 00:39:17,640
maybe two of those.
But you know, just finding those

795
00:39:17,640 --> 00:39:21,040
that you know, want to allocate
to mining is is hard enough.

796
00:39:22,280 --> 00:39:24,440
So that's, that's how they think
about mining.

797
00:39:25,040 --> 00:39:29,480
If you go back a step, yeah,
they, they have these enormous,

798
00:39:29,600 --> 00:39:33,120
enormous funds where, yeah,
they're thinking more about, you

799
00:39:33,120 --> 00:39:34,760
know, how much they're
allocating to, you know,

800
00:39:34,880 --> 00:39:39,160
private, private markets.
That's a big decision as well.

801
00:39:39,160 --> 00:39:43,080
So, yeah, minimizing volatility
in the portfolio, having

802
00:39:43,400 --> 00:39:46,200
exposure to private equity where
there's largely like private

803
00:39:46,200 --> 00:39:50,160
asset classes that can be sort
of mark to market, you know,

804
00:39:50,160 --> 00:39:53,360
without the volatility of, you
know, movements in the macro

805
00:39:53,360 --> 00:39:56,600
environment that that is a nice
way just to smooth out their

806
00:39:56,600 --> 00:39:58,400
portfolio.
And that can be, you know, one

807
00:39:58,400 --> 00:40:01,320
of the reasons why they're
entertaining looking at, you

808
00:40:01,320 --> 00:40:03,720
know, other private equity
managers or increasing the

809
00:40:03,720 --> 00:40:07,400
bucket size that's going to to
private equity and potentially

810
00:40:07,400 --> 00:40:09,600
like, you know, mining private
equity funds.

811
00:40:10,160 --> 00:40:13,680
Yeah, yeah.
That, that education component

812
00:40:13,680 --> 00:40:16,680
is I think that's prevalent for
for all investors in the mining

813
00:40:16,680 --> 00:40:20,160
space as well, specifically the
ones outside of Australia.

814
00:40:20,160 --> 00:40:21,760
I think in Australia we get it a
bit more.

815
00:40:21,760 --> 00:40:26,320
But Even so, there's been a kind
of dearth of of equity managers

816
00:40:26,320 --> 00:40:28,840
in, in the mining space as well.
And it's hard to get you

817
00:40:28,840 --> 00:40:30,640
allocations.
And perhaps that's just a

818
00:40:31,200 --> 00:40:34,120
component of a bigger problem
with with active management.

819
00:40:34,360 --> 00:40:36,640
Yeah, I think that's, I mean
more just a bigger challenge for

820
00:40:36,640 --> 00:40:38,680
the industry, right?
It's a poorly understood

821
00:40:38,680 --> 00:40:42,360
industry, yeah, even in this
country, but you know, you know,

822
00:40:42,360 --> 00:40:44,960
globally as well.
Yet now I think it's more

823
00:40:44,960 --> 00:40:47,080
awareness about supply chains,
critical minerals.

824
00:40:47,080 --> 00:40:49,680
It's starting to get a little
bit more, you know, visibility.

825
00:40:49,680 --> 00:40:53,120
But it is just a poorly
understood industry for what is

826
00:40:53,120 --> 00:40:55,320
quite meaningful in in most
economies.

827
00:40:55,320 --> 00:40:59,400
Can I ask you a question about
the opportunity selection?

828
00:40:59,400 --> 00:41:02,320
Like in some respects, like
there's a very diligent

829
00:41:02,320 --> 00:41:05,320
investment process that you have
to kind of go through to get a

830
00:41:05,320 --> 00:41:09,040
deal done within these like.
We talked about construction

831
00:41:09,040 --> 00:41:11,040
risk and how concentrated
portfolios are.

832
00:41:11,040 --> 00:41:14,000
So, you know, the underwriting
process for this is is got to be

833
00:41:14,000 --> 00:41:15,640
very, very thorough.
Yeah.

834
00:41:16,360 --> 00:41:20,280
And it's, it's thorough.
It I imagine can happen quickly,

835
00:41:20,280 --> 00:41:22,400
but often might be like take a
bit of time.

836
00:41:22,720 --> 00:41:26,240
Like are there any limitations
or anything to do with with with

837
00:41:26,240 --> 00:41:29,040
the way that that happens?
Do you think private equity sees

838
00:41:29,040 --> 00:41:30,240
the best deals?
Like what do you think?

839
00:41:30,240 --> 00:41:33,480
The best deals sometimes don't
even get seen by private equity.

840
00:41:33,520 --> 00:41:34,880
Yeah, that's a really good
question.

841
00:41:35,000 --> 00:41:38,200
Selection bias, yeah.
Yeah, there, there would be.

842
00:41:38,200 --> 00:41:42,280
I would say, look, you know,
when it's a really hot

843
00:41:42,280 --> 00:41:46,160
commodity, it's in vogue, you
know, you're you're moving, you

844
00:41:46,160 --> 00:41:49,160
know, the top end of the cycle.
Public equity is available.

845
00:41:49,880 --> 00:41:53,560
Look, right now in precious and
you know, arguably in some of

846
00:41:53,560 --> 00:41:56,320
these critical metals like, you
know, rare earths as well, you

847
00:41:56,320 --> 00:41:58,960
know, companies are able to go
and raise, you know, significant

848
00:41:58,960 --> 00:42:01,320
quantums on on public equity
markets right now.

849
00:42:01,320 --> 00:42:04,520
They don't need to come to a
private equity fund or

850
00:42:04,520 --> 00:42:08,520
alternative, you know, sources
of capital and, you know, pay

851
00:42:08,800 --> 00:42:11,680
higher fees or give a little bit
more more a way to bring that

852
00:42:11,680 --> 00:42:16,640
capital in the door.
So, you know, the private equity

853
00:42:16,640 --> 00:42:20,080
is needed in in markets when you
know, you're at the bottom of

854
00:42:20,080 --> 00:42:22,120
the market and public equity
can't be raised.

855
00:42:22,480 --> 00:42:25,160
You're in, you know, really nice
commodities that are poorly

856
00:42:25,160 --> 00:42:28,840
understood, that need a lot of
work to, to understand the

857
00:42:28,840 --> 00:42:32,120
fundamentals of those, those
commodity markets or they're,

858
00:42:32,120 --> 00:42:34,120
you know, far fun places.
You know, there might be great

859
00:42:34,120 --> 00:42:37,240
projects too, but you know, just
we'll be outside the risk

860
00:42:37,240 --> 00:42:40,520
appetite for most, you know,
public equity investors as well.

861
00:42:40,520 --> 00:42:44,520
So do they see the best deals?
You know, it depends.

862
00:42:44,520 --> 00:42:48,000
You know, there's, there's great
assets out there that you had

863
00:42:48,000 --> 00:42:50,760
absolutely no love in, in the
public markets and they'll

864
00:42:50,760 --> 00:42:52,560
picked up by, you know, PE
funds.

865
00:42:53,080 --> 00:42:56,520
And then, you know, the markets
turn, you know, a lot of work's

866
00:42:56,520 --> 00:42:59,800
done to de risk, risk appetites
change and these PE funds can

867
00:42:59,800 --> 00:43:03,360
find an exit for these assets
that are viewed very differently

868
00:43:03,360 --> 00:43:05,600
in a different market, different
conditions.

869
00:43:05,600 --> 00:43:09,520
And that is like the perfect
your private equity investment.

870
00:43:09,520 --> 00:43:13,440
You find something unloved and
at the bottom of the cycle do

871
00:43:13,440 --> 00:43:16,400
some work and then, you know,
get the timing right and and it

872
00:43:16,400 --> 00:43:19,720
is recognized and there's huge
value uplift there.

873
00:43:21,320 --> 00:43:22,720
So let's talk about the
conditions now.

874
00:43:22,800 --> 00:43:26,480
You mentioned 15,000 private
equity groups before.

875
00:43:26,480 --> 00:43:29,320
Obviously only a small number of
them are in the mining space,

876
00:43:29,680 --> 00:43:33,000
but there has been an increasing
number over time.

877
00:43:33,640 --> 00:43:36,520
We've also seen more and more
sources of capital in in the

878
00:43:36,520 --> 00:43:39,640
mining space, be it sovereign
wealth funds, be it the

879
00:43:39,640 --> 00:43:43,160
government coming in, be it
streamers and royalties flexing

880
00:43:43,160 --> 00:43:45,000
their muscles and having greater
allocations.

881
00:43:45,440 --> 00:43:49,360
How does the the landscape look
right now, perhaps contrasting

882
00:43:49,360 --> 00:43:51,760
with when you came in?
And what do you see that looking

883
00:43:51,760 --> 00:43:55,360
like a few years down the road?
It's a good question because it

884
00:43:55,360 --> 00:43:57,920
certainly is evolving and you
know, has been evolving for a

885
00:43:57,920 --> 00:44:01,120
long time.
Look, there's I think lots more

886
00:44:01,120 --> 00:44:05,200
mining PE funds around now.
Yeah, there's the those that

887
00:44:05,200 --> 00:44:08,960
were early in the game, you
know, 1520 years ago that now

888
00:44:08,960 --> 00:44:11,160
have multiple strategies that
have been, you know, quite

889
00:44:11,160 --> 00:44:14,400
successful, sustainable, raised
multiple fund vintages in each

890
00:44:14,400 --> 00:44:17,720
strategy, diversified across
different strategies as well.

891
00:44:18,280 --> 00:44:20,640
And there's new entrance to the
game as well.

892
00:44:21,400 --> 00:44:24,240
People that have worked in one
fund, they've gone out to start

893
00:44:24,240 --> 00:44:27,760
their own fund, etcetera.
So there there's definitely more

894
00:44:27,760 --> 00:44:32,240
mining PE funds out there.
But in terms of capital being

895
00:44:32,240 --> 00:44:36,040
allocated to, to mining PE, my
gut feeling is it's probably

896
00:44:36,040 --> 00:44:39,480
hasn't changed that much.
However, there's more competing

897
00:44:39,480 --> 00:44:43,120
sources of capital for the the
actual assets out there, as you

898
00:44:43,120 --> 00:44:45,960
say.
So you've definitely seen your

899
00:44:45,960 --> 00:44:48,200
sort of government step up and
want to be involved more.

900
00:44:48,200 --> 00:44:52,880
They don't know how to do it
well and, and try still trying

901
00:44:52,880 --> 00:44:55,320
to figure out, you know, the
best strategy to allocate there.

902
00:44:55,320 --> 00:44:58,160
But you know, you are seeing
them, you know, have a great

903
00:44:58,160 --> 00:45:01,360
appetite to move and, and
prepared to write checks now.

904
00:45:01,960 --> 00:45:04,120
And that's something that's
changed and that's ultimately

905
00:45:04,120 --> 00:45:08,800
competing for a competing source
of capital for PE.

906
00:45:09,960 --> 00:45:12,160
You know, that's getting might
be squeezed out on some

907
00:45:12,160 --> 00:45:15,640
particular deals, particular
commodities there as well, the

908
00:45:15,640 --> 00:45:20,760
sovereign wealth funds as well.
I think that's probably more on

909
00:45:20,960 --> 00:45:23,320
sort of the stage you are in the
value chain these commodities.

910
00:45:23,320 --> 00:45:27,920
But certainly things that
private equity probably didn't

911
00:45:27,920 --> 00:45:30,360
chase, things that were
midstream or downstream where,

912
00:45:30,360 --> 00:45:33,080
you know, the returns are
probably more industrial like,

913
00:45:33,080 --> 00:45:37,000
you know, single digit percents.
Yeah, there's not not great

914
00:45:37,000 --> 00:45:40,760
economics in these assets, but
you know, there's a lot of

915
00:45:40,760 --> 00:45:44,440
broader, broader, broader
benefits, you know, in country

916
00:45:44,440 --> 00:45:48,040
building out, you know, skills,
whole supply chains, et cetera.

917
00:45:48,400 --> 00:45:51,320
You're seeing those groups start
to want have a big appetite to

918
00:45:51,320 --> 00:45:53,920
do that and get ready to step in
there.

919
00:45:54,520 --> 00:45:57,680
And they're happy to to make
these investments without

920
00:45:57,680 --> 00:46:00,160
compelling economics too as
well.

921
00:46:00,800 --> 00:46:03,000
And when you do go midstream
downstream, obviously you need

922
00:46:03,000 --> 00:46:04,840
the upstream feed to come along
there.

923
00:46:04,840 --> 00:46:08,480
So yeah, that's where, you know,
PE is starting to tie in with

924
00:46:08,480 --> 00:46:10,360
some of these groups that are
looking to build out the

925
00:46:10,360 --> 00:46:13,480
midstream downstream in their
countries, in their regions as

926
00:46:13,480 --> 00:46:15,280
well.
So that that's definitely

927
00:46:15,280 --> 00:46:17,040
growing and I think it will
continue to.

928
00:46:17,400 --> 00:46:20,000
And that's really just playing
into this whole, you know,

929
00:46:20,440 --> 00:46:22,920
onshoring of the supply chain,
thematic, you know, across the

930
00:46:22,920 --> 00:46:26,880
whole world.
So what does that mean for for

931
00:46:26,880 --> 00:46:28,720
private equity returns going
forward?

932
00:46:29,640 --> 00:46:33,560
Well, I think it, it just
narrows the line of where they

933
00:46:33,560 --> 00:46:37,920
can play again to these other
groups, you know, with sort of

934
00:46:37,920 --> 00:46:40,880
streamers royalties able to
provide, you know, pretty low

935
00:46:40,880 --> 00:46:44,760
cost capital to some of these
assets just means the universe

936
00:46:44,760 --> 00:46:49,200
of assets that private equity
might invest into is probably

937
00:46:49,200 --> 00:46:53,000
shrinking.
And in terms of private equity

938
00:46:53,000 --> 00:46:57,440
being a competitive solution for
these companies and assets,

939
00:46:57,440 --> 00:47:00,160
they're trying to finance it,
They're probably less

940
00:47:00,160 --> 00:47:04,400
competitive compared to what
else is being given to them

941
00:47:04,480 --> 00:47:06,840
right now as well.
There's probably always going to

942
00:47:06,840 --> 00:47:09,840
be a need for, you know, PE
financing in, in you get

943
00:47:09,840 --> 00:47:14,560
difficult jurisdictions, obscure
commodities, yeah, things

944
00:47:14,560 --> 00:47:17,320
they've got some sort of
overhang there that, you know,

945
00:47:17,320 --> 00:47:19,040
needs quite a lot of effort to
resolve.

946
00:47:19,880 --> 00:47:23,240
But the all the easy low hanging
fruit I think is is becoming

947
00:47:23,240 --> 00:47:26,680
financed by by others.
Is there is there a pro cyclical

948
00:47:26,680 --> 00:47:30,240
nature to the ability of private
equity funds to to to actually

949
00:47:30,240 --> 00:47:32,480
raise their own capital as well
like to the endowments more

950
00:47:32,480 --> 00:47:38,400
forthcoming with with with with,
you know, you know, big funds at

951
00:47:38,800 --> 00:47:42,640
at very like you know, cyclical
highs in commodity markets and

952
00:47:42,640 --> 00:47:44,160
then you have to deploy it in
the high times.

953
00:47:44,360 --> 00:47:47,200
Is there any pro cyclical
element to to the history of

954
00:47:47,200 --> 00:47:49,720
private equity research I.
I think fundraising probably has

955
00:47:49,720 --> 00:47:52,680
a degree of pro cyclically.
Yeah, ideally you raise the up

956
00:47:52,680 --> 00:47:54,400
and then you wait for the crash
and then you deploy them.

957
00:47:55,040 --> 00:47:59,080
Yeah, I mean, the the hardest
thing I think investing

958
00:47:59,080 --> 00:48:01,800
generally is be truly counter
cyclical, not pay attention to

959
00:48:01,880 --> 00:48:04,000
to the noise and everything else
going on.

960
00:48:04,560 --> 00:48:08,080
And I'd say, you know, whether
it's, you know, pay manager, you

961
00:48:08,080 --> 00:48:11,640
know, you and I investing retail
investors or even these, you

962
00:48:11,640 --> 00:48:14,320
know, enormous asset managers,
it's no different.

963
00:48:14,320 --> 00:48:15,600
It's really hard to be
disciplined.

964
00:48:15,600 --> 00:48:17,680
So I think certainly.
I don't know what you're talking

965
00:48:17,680 --> 00:48:19,400
about.
I've done more trades in a bull

966
00:48:19,400 --> 00:48:22,640
market.
Certainly when when you're in a

967
00:48:22,640 --> 00:48:25,520
good market, you know, I think
they're a lot more receptive to,

968
00:48:25,600 --> 00:48:28,680
you know, marketing
conversations with the pay funds

969
00:48:28,680 --> 00:48:32,000
that that are fundraising.
And again, when it's it's

970
00:48:32,120 --> 00:48:34,800
probably the wrong time to be,
you know, deploying, you know,

971
00:48:34,800 --> 00:48:36,400
they should have been there, you
know, years ago.

972
00:48:36,400 --> 00:48:38,600
So they could come in right at
the bottom of the cycle.

973
00:48:39,400 --> 00:48:43,040
So, yeah, it is difficult
because, you know, by the time a

974
00:48:43,040 --> 00:48:44,760
fund's raised and they're
deploying, you know, you're

975
00:48:44,760 --> 00:48:47,080
potentially at the top of the
cycle or you've missed it, you

976
00:48:47,080 --> 00:48:48,240
know, for particularly
commodities.

977
00:48:48,240 --> 00:48:50,800
And you have to shift, you know,
your strategy to other

978
00:48:50,800 --> 00:48:55,000
commodities as well.
So it's a very dynamic process.

979
00:48:56,320 --> 00:48:58,640
You know, in an ideal world,
yes, you'd have a lot of dry

980
00:48:58,640 --> 00:49:01,080
powder, you know, a lot of
capital committed to you, to

981
00:49:01,080 --> 00:49:03,480
your fund that you hadn't called
down on yet.

982
00:49:03,480 --> 00:49:05,800
And you could call it down at
the very bottom of the market

983
00:49:05,800 --> 00:49:07,640
when you saw the very best
opportunities.

984
00:49:08,120 --> 00:49:10,120
In an ideal world, that would be
how it worked.

985
00:49:10,120 --> 00:49:12,800
But realistically, you know,
things are doing well now.

986
00:49:12,800 --> 00:49:15,720
You have some fantastic exits in
an older vintage fund.

987
00:49:15,760 --> 00:49:19,960
You're getting momentum there.
Yeah, LP's are probably pretty

988
00:49:19,960 --> 00:49:23,040
receptive to putting money into
a new fund, even though, yeah,

989
00:49:23,040 --> 00:49:26,200
the commodity cycle and market
is really at a different point

990
00:49:26,200 --> 00:49:27,960
in time.
Like the old time record, you

991
00:49:27,960 --> 00:49:30,360
know, best private equity deals
in in the mining industry.

992
00:49:30,360 --> 00:49:32,360
It's like you get like, yeah,
you hear stories of when you

993
00:49:32,520 --> 00:49:35,240
when you join a PU fair.
I mean like, oh mates, such and

994
00:49:35,240 --> 00:49:37,760
such was the best deal ever.
Yeah, look, there's, there's,

995
00:49:37,760 --> 00:49:41,520
there's plenty of those around.
You know, people talk about tin

996
00:49:41,520 --> 00:49:44,000
baggers, but you know, I've,
I've seen quite a few of those.

997
00:49:44,000 --> 00:49:47,600
I know RCF had some phenomenal
wins in, you know, rare earths

998
00:49:47,840 --> 00:49:49,440
in the early funds with Mountain
Pass.

999
00:49:49,480 --> 00:49:51,320
You know, that's, that's a
pretty well known example.

1000
00:49:51,720 --> 00:49:55,600
One of their other strategies in
mining innovation, you know,

1001
00:49:55,600 --> 00:49:57,800
where they invest in a lot of
different mining technology,

1002
00:49:57,960 --> 00:50:02,200
they invested in company called
BMT blast movement technologies,

1003
00:50:02,200 --> 00:50:06,840
these little, you know, balls
with RFI DS that go inside blast

1004
00:50:06,840 --> 00:50:09,440
holes and they can track the
heave, you know, you know, pit

1005
00:50:09,920 --> 00:50:11,800
gold mines.
So you can track where, you

1006
00:50:11,800 --> 00:50:13,760
know, the the always being
distributed post blast.

1007
00:50:13,760 --> 00:50:15,800
I mean, that was a phenomenal
investment.

1008
00:50:15,800 --> 00:50:18,480
It was, you know, it's a sort of
product that could be readily

1009
00:50:19,040 --> 00:50:22,720
consumed to low cost, you know,
at at gold mines globally.

1010
00:50:22,720 --> 00:50:26,360
So, yeah, another one of those,
you know, phenomenal returns you

1011
00:50:26,360 --> 00:50:29,080
hear about, you know, you've got
to be lucky.

1012
00:50:29,080 --> 00:50:31,320
But there's also a lot of work
behind the scenes in

1013
00:50:31,320 --> 00:50:35,120
identifying, you know,
identifying, yeah, the right

1014
00:50:35,120 --> 00:50:39,440
market, the right product in
that case as well-being counter

1015
00:50:39,440 --> 00:50:42,880
cyclical, you know, making a
bold call to allocate, you know,

1016
00:50:42,880 --> 00:50:45,480
significant capital at the
bottom of a market when it's

1017
00:50:45,480 --> 00:50:49,120
hated as well.
So yeah, there's, there's a lot

1018
00:50:49,120 --> 00:50:51,560
of thought to it, a lot of work,
a lot of diligence done to the

1019
00:50:51,560 --> 00:50:54,880
very, you know, calculated, you
know, risks that are taken.

1020
00:50:56,120 --> 00:50:59,000
Tembo and Spartan wasn't a bad
bet, and the RCF Pilbara one

1021
00:50:59,000 --> 00:51:00,800
that had a pretty pretty speedy
returns.

1022
00:51:00,840 --> 00:51:03,680
Although in my mind they're just
not private equity bets you're

1023
00:51:03,680 --> 00:51:05,920
buying a stake in.
Balance sheet down around, it's

1024
00:51:05,960 --> 00:51:08,560
like, yeah, yeah.
Yeah, I mean Altura was a

1025
00:51:08,560 --> 00:51:12,400
distressed because I mean every,
I mean arguably Pilbara didn't

1026
00:51:12,400 --> 00:51:14,240
have the biggest balance sheet
at the time too.

1027
00:51:14,240 --> 00:51:19,440
Galaxy, you know, needed raise
capital at the time too.

1028
00:51:20,440 --> 00:51:23,360
It was survival for all of the
lithium players at that time.

1029
00:51:25,000 --> 00:51:29,440
But you know, Purebra, I mean it
was one ore body and had a fence

1030
00:51:29,440 --> 00:51:31,360
put over the middle of it.
It really should have been, you

1031
00:51:31,360 --> 00:51:33,000
know, a single operator from day
one.

1032
00:51:33,520 --> 00:51:35,600
It was a very logical
consolidation to do.

1033
00:51:35,600 --> 00:51:39,920
But yeah, had the support of
patient counter cyclical money,

1034
00:51:39,960 --> 00:51:42,920
you know through RCF there to to
underwrite, you know the

1035
00:51:42,920 --> 00:51:46,040
acquisition there, which you
know would have been hard to do

1036
00:51:46,840 --> 00:51:49,720
on that particular example.
You know, there was other

1037
00:51:49,720 --> 00:51:52,120
bidders in there, another, you
know, listed company that needed

1038
00:51:52,120 --> 00:51:55,480
to raise capital that had a had
a proposal there.

1039
00:51:56,080 --> 00:51:59,320
But again, contingent on
raising, you know, public equity

1040
00:51:59,320 --> 00:52:02,440
at the bottom of the market for
you know, close to its market

1041
00:52:02,440 --> 00:52:05,240
cap would have been pretty hard
to execute on versus you know, a

1042
00:52:05,240 --> 00:52:08,480
fully underwritten solution with
you know, private equity money

1043
00:52:08,480 --> 00:52:10,520
there too.
So, yeah, there is definitely

1044
00:52:10,520 --> 00:52:14,320
like a role to play on the M&A
side and providing some funding

1045
00:52:15,360 --> 00:52:18,360
surety.
Actual synergies in mining,

1046
00:52:18,360 --> 00:52:20,680
that's amazing.
There's a lot of these odd

1047
00:52:20,720 --> 00:52:22,240
bodies with fences across the
middle.

1048
00:52:24,120 --> 00:52:25,600
It's just too easy.
They're layups for you.

1049
00:52:26,520 --> 00:52:29,760
One last one from me, Fraser, I
want to talk about the commodity

1050
00:52:29,760 --> 00:52:32,360
traders and then stomping on the
feet of of private equity.

1051
00:52:32,360 --> 00:52:35,600
And perhaps they're just another
player that makes the, the the

1052
00:52:35,600 --> 00:52:37,680
playing field a bit smaller for,
for private equity.

1053
00:52:37,680 --> 00:52:41,640
But we've seen a number of these
traditional oil commodity

1054
00:52:41,640 --> 00:52:44,200
traders come in, build out
metals and mining teams.

1055
00:52:44,360 --> 00:52:48,560
A lot of them want off takes and
they're sort of finding their

1056
00:52:48,560 --> 00:52:50,680
way in.
Are they a competitor you think

1057
00:52:50,800 --> 00:52:53,440
represents a a challenge to the
the PA industry?

1058
00:52:53,520 --> 00:52:56,240
Yeah, they are, They are, right.
Look, they've got an, you know,

1059
00:52:56,240 --> 00:52:58,720
enormous balance sheets that
aren't particularly productive.

1060
00:52:58,720 --> 00:53:02,600
So, you know, low cost of
capital, you know, for them they

1061
00:53:02,600 --> 00:53:05,320
can, you know, provide
financing, you know, well,

1062
00:53:05,360 --> 00:53:07,880
that's very competitive, you
know, to any company that's

1063
00:53:07,880 --> 00:53:09,840
looking for financing to build
their project.

1064
00:53:10,600 --> 00:53:11,960
So their balance sheets have
grown.

1065
00:53:11,960 --> 00:53:14,880
Their cost of capital is very
competitive and they're willing

1066
00:53:14,880 --> 00:53:17,040
to deploy it now to secure a
product.

1067
00:53:17,520 --> 00:53:21,320
So their, their appetite to
transact is a lot higher and the

1068
00:53:21,320 --> 00:53:23,200
size of the checks they're
willing to write for the

1069
00:53:23,360 --> 00:53:26,000
equivalent amount of metal and
product is probably higher as

1070
00:53:26,000 --> 00:53:28,760
well.
And there's more players in

1071
00:53:28,760 --> 00:53:30,280
there.
There's the conventional, you

1072
00:53:30,280 --> 00:53:33,920
know, oil and gas, other types
of commodity traders that are

1073
00:53:33,920 --> 00:53:37,000
now willing to, to get into, you
know, proper, you know,

1074
00:53:37,000 --> 00:53:40,480
concentrate trading.
And, you know, they're going to

1075
00:53:40,480 --> 00:53:43,680
be quite aggressive on their
terms to secure supply,

1076
00:53:44,040 --> 00:53:46,320
particularly as, you know,
they're coming, you know,

1077
00:53:46,440 --> 00:53:49,920
they're getting into the space.
They're trying to steal a little

1078
00:53:49,920 --> 00:53:52,640
bit of market share from, you
know, the incumbents as well.

1079
00:53:52,640 --> 00:53:57,000
So that's definitely going to
be, you know, competing source

1080
00:53:57,000 --> 00:54:00,440
of capital for Pai mean if you
know traffic euro comes in and

1081
00:54:00,440 --> 00:54:03,360
does, you know, an off take
prepayment facility at so for

1082
00:54:03,360 --> 00:54:07,640
plus 2% circuit 8%, well, you
know, PE funds not going to be

1083
00:54:07,640 --> 00:54:10,680
able to get a return if they had
an 8% coupon on their facility

1084
00:54:10,680 --> 00:54:12,600
to, you know, they're probably
going to be a lot higher.

1085
00:54:12,600 --> 00:54:14,440
They need to find other ways to
get the return.

1086
00:54:14,440 --> 00:54:17,720
So really hard for for people to
compete there.

1087
00:54:19,360 --> 00:54:22,560
The trade off is maybe giving a
what there's a bit of leakage on

1088
00:54:22,560 --> 00:54:24,760
the terms of the actual off take
as well.

1089
00:54:25,320 --> 00:54:27,200
That's somewhat of a black box
too.

1090
00:54:28,200 --> 00:54:30,960
Hard to really know how much
leakage there is what is you

1091
00:54:30,960 --> 00:54:33,440
know market standard there.
But you know they're certainly

1092
00:54:33,440 --> 00:54:36,080
offering very competitive
financing packages in parallel

1093
00:54:36,080 --> 00:54:40,440
with with off take there.
At the same time, you know some

1094
00:54:40,440 --> 00:54:44,400
of these other groups, you know
some of these other governments

1095
00:54:45,760 --> 00:54:49,680
and just even PE funds to
looking to secure off take as

1096
00:54:49,680 --> 00:54:52,760
well.
It's no longer free up for grabs

1097
00:54:52,760 --> 00:54:55,720
for everyone.
There is a lot of demand for the

1098
00:54:55,720 --> 00:54:57,720
actual product.
The rights to that product are

1099
00:54:57,720 --> 00:55:03,000
becoming more and more valuable.
The the exits of private equity

1100
00:55:03,000 --> 00:55:04,440
is just one thing I want to
touch on too.

1101
00:55:05,520 --> 00:55:08,360
If you've got a got a fund
that's coming to the end of life

1102
00:55:11,280 --> 00:55:13,480
in the end of the 10 years, like
what are the options available

1103
00:55:13,480 --> 00:55:16,000
if, if some of the some of the
assets that are within that

1104
00:55:16,000 --> 00:55:18,920
portfolio maybe haven't been
realized yet or or there's

1105
00:55:18,960 --> 00:55:20,760
there's liquidity challenges to
realizing them?

1106
00:55:21,000 --> 00:55:24,320
Yeah, good, Good question.
Because yeah, it doesn't always

1107
00:55:24,320 --> 00:55:27,320
go right.
Yeah, you're in something pretty

1108
00:55:27,320 --> 00:55:30,520
niche, you know, diamonds in
Lesotho to, you know, book

1109
00:55:30,520 --> 00:55:32,960
siding.
You know, you can't, you can't

1110
00:55:32,960 --> 00:55:35,840
just run a sale process and flip
those things overnight.

1111
00:55:36,280 --> 00:55:41,320
So what do you do?
You can, you can try really hard

1112
00:55:41,440 --> 00:55:43,880
to, to make the project more
attractive.

1113
00:55:43,880 --> 00:55:46,880
And maybe that's an, an
expansion, it's consolidation

1114
00:55:46,880 --> 00:55:50,760
with, you know, a neighbor
sending it into a larger vehicle

1115
00:55:50,760 --> 00:55:54,080
that's more diversified.
And maybe you'll, you'll, you'll

1116
00:55:54,080 --> 00:55:56,720
take a hit there on on the
valuation, but you might have a

1117
00:55:56,720 --> 00:56:00,480
pathway to liquidity eventually.
Being another fund.

1118
00:56:01,000 --> 00:56:04,760
Or well another another mining
company there assets, assets.

1119
00:56:04,760 --> 00:56:07,720
So these are things you could do
with the portfolio company, the

1120
00:56:07,720 --> 00:56:11,040
investment itself.
If that fails, what do you do?

1121
00:56:11,040 --> 00:56:14,720
Well, it's probably more a
problem for, you know, you see,

1122
00:56:14,720 --> 00:56:18,640
you see more in general as PE,
but you see extensions to funds.

1123
00:56:19,160 --> 00:56:21,360
So that might extend the fund
beyond those 10 years.

1124
00:56:21,360 --> 00:56:24,680
But they're not, you know,
getting a management fee on, you

1125
00:56:24,680 --> 00:56:26,920
know, the, the capital they're
managing anymore.

1126
00:56:26,920 --> 00:56:30,080
They're just, you know, trying
to buy some time to get towards

1127
00:56:30,080 --> 00:56:33,200
an exit or pending that not
working.

1128
00:56:33,560 --> 00:56:37,120
You do see what's called like
private equity secondaries where

1129
00:56:37,120 --> 00:56:40,480
they're effectively selling, you
know, the individual portfolio

1130
00:56:40,480 --> 00:56:45,080
companies or you know, all of
the portfolio to another fund.

1131
00:56:45,160 --> 00:56:49,960
And there's dedicated PE funds
that just go around mopping up,

1132
00:56:50,280 --> 00:56:54,960
you know, these mature assets
from, you know, yeah, funds that

1133
00:56:54,960 --> 00:56:57,720
are in there for life and
they'll buy them a big discount.

1134
00:56:58,160 --> 00:57:00,440
The pitch for them is that, you
know, they're much, these

1135
00:57:00,440 --> 00:57:02,440
investments are much closer
towards their exit.

1136
00:57:02,440 --> 00:57:05,440
There's been a lot of capital
sunk, a lot of value added.

1137
00:57:05,440 --> 00:57:08,400
They just need a little bit more
time to get towards, you know,

1138
00:57:08,400 --> 00:57:10,520
the exit.
And so the prize is there and

1139
00:57:10,520 --> 00:57:14,240
there are actually some examples
of really successful funds that

1140
00:57:14,240 --> 00:57:15,400
just do.
Sounds like a good show.

1141
00:57:15,400 --> 00:57:18,080
Secondaries.
The marking of how they measure

1142
00:57:18,080 --> 00:57:20,560
those is pretty controversial.
Absolutely as well.

1143
00:57:21,120 --> 00:57:24,040
And and valuation across the
board, you know, for private

1144
00:57:24,040 --> 00:57:27,080
companies, you talked, we talked
earlier about, you know, some

1145
00:57:27,080 --> 00:57:30,200
funds, you know, raising funds
very quickly.

1146
00:57:30,680 --> 00:57:35,200
You know, they've got all of
these private investments, you

1147
00:57:35,200 --> 00:57:37,240
know, public company they took
private.

1148
00:57:38,000 --> 00:57:40,320
What's it going to be valued at
at 30th of June?

1149
00:57:40,480 --> 00:57:43,600
Well, it's, it's a work of
fiction.

1150
00:57:43,960 --> 00:57:45,240
It can be whatever you want,
right.

1151
00:57:45,520 --> 00:57:47,400
Look, there is process to it.
It is ordered.

1152
00:57:47,400 --> 00:57:50,200
But ultimately, yeah, there is
some, it's a narrative on

1153
00:57:50,200 --> 00:57:53,080
valuation and, you know,
commodity prices.

1154
00:57:53,080 --> 00:57:55,840
You're choosing.
Yeah, every mining project

1155
00:57:55,840 --> 00:57:59,520
sensitive to that, you know,
let's say it's it's a market

1156
00:57:59,520 --> 00:58:01,680
based approach, you're looking
at other comparables

1157
00:58:01,680 --> 00:58:04,440
transactions, you know, you're
cherry picking what you want

1158
00:58:04,440 --> 00:58:07,000
there.
So you know, these funds can

1159
00:58:07,000 --> 00:58:10,680
manage the valuation volatility
by managing these private

1160
00:58:10,680 --> 00:58:13,800
company valuations.
If your whole portfolio is

1161
00:58:13,800 --> 00:58:16,560
private company investments, you
can call it whatever you want

1162
00:58:16,560 --> 00:58:20,480
and you know, magically in two
years, you know, these they've

1163
00:58:20,480 --> 00:58:24,000
been marked up really well.
That's been quite cynical, but

1164
00:58:24,320 --> 00:58:27,400
you know, there is a little bit
of wiggle room, you know, you

1165
00:58:27,400 --> 00:58:30,920
could have there and you know,
you could say, hey, My Portfolio

1166
00:58:30,920 --> 00:58:36,440
is, is sitting at, you know, a
1.3 X mark to market today based

1167
00:58:36,440 --> 00:58:40,760
on my private company valuation.
So someone coming in.

1168
00:58:40,760 --> 00:58:42,200
So actually that that looks
great.

1169
00:58:42,200 --> 00:58:44,560
I'll come into that fund or not
even put some money into your

1170
00:58:44,560 --> 00:58:45,960
next fund.
This looks great.

1171
00:58:45,960 --> 00:58:49,760
So there's, you know, the
incentives are there for it to

1172
00:58:49,760 --> 00:58:54,000
be a little bit abused.
I think it it's tricky though.

1173
00:58:54,000 --> 00:58:56,520
They generally genuinely are,
you know, lots of private

1174
00:58:56,520 --> 00:59:00,360
investments within these
portfolios and you know, there

1175
00:59:00,360 --> 00:59:04,000
is a bit of, you know, a bit of
room to move on, on a lot of

1176
00:59:04,000 --> 00:59:07,880
these things.
And and you know, PE funds have

1177
00:59:07,960 --> 00:59:12,440
got a lot of conviction for
these things too, you know, so.

1178
00:59:14,640 --> 00:59:16,200
There's there's a view out
there.

1179
00:59:16,200 --> 00:59:19,440
It's a view that like we've
we've said before or parroted

1180
00:59:19,440 --> 00:59:22,040
and it's even a view that we've
we've heard from like, you know,

1181
00:59:22,640 --> 00:59:24,560
massive, massive capital
allocators as well.

1182
00:59:25,480 --> 00:59:29,240
And that's the private, like
private equity mining just

1183
00:59:29,240 --> 00:59:31,080
doesn't quite work.
Like the, you know, there's,

1184
00:59:31,520 --> 00:59:34,360
there's a floor in the, in the,
in the funding model of the

1185
00:59:34,360 --> 00:59:36,120
returns don't quite kind of get
there.

1186
00:59:36,480 --> 00:59:42,280
Do you disagree with that take?
Yeah, I look, I would say, you

1187
00:59:42,280 --> 00:59:45,440
know, there's pros and cons to,
you know, this asset class and

1188
00:59:45,440 --> 00:59:50,120
product, you know, in in the
context of this industry, does

1189
00:59:50,120 --> 00:59:53,880
it provide capital to projects
that wouldn't have otherwise be

1190
00:59:53,880 --> 00:59:56,240
funded?
Yes, I would say some of these,

1191
00:59:56,320 --> 01:00:00,440
you know, niche industrial
minerals, you know, good quality

1192
01:00:00,440 --> 01:00:03,360
projects in far-flung places,
you probably couldn't raise

1193
01:00:03,360 --> 01:00:06,280
capital to build them.
Without, you know, capital

1194
01:00:06,280 --> 01:00:09,040
coming from PE.
So yeah, is there on the balance

1195
01:00:09,040 --> 01:00:12,480
more projects built, more supply
because of it?

1196
01:00:12,760 --> 01:00:16,360
I'd say yes.
However, you know, there is, you

1197
01:00:16,360 --> 01:00:19,800
know, there's a lot of leakage
in the model for investors that

1198
01:00:19,800 --> 01:00:22,160
go into it, you know, through
management fees, performance

1199
01:00:22,160 --> 01:00:23,960
fees.
You know, it's still a really

1200
01:00:23,960 --> 01:00:26,760
risky asset class.
You know, you know, they're

1201
01:00:26,800 --> 01:00:31,000
illiquid, generally illiquid
investments and it, it is really

1202
01:00:31,000 --> 01:00:33,360
hard to, to find exits for these
things.

1203
01:00:33,800 --> 01:00:36,960
You know, you might not get more
than one shot to get your exit

1204
01:00:36,960 --> 01:00:39,560
on, you know, what might be, you
know, a few $100 million

1205
01:00:39,560 --> 01:00:44,120
investment, you know, so still,
it's not an easy game to play.

1206
01:00:45,120 --> 01:00:48,160
There are some really good
managers out there with a lot of

1207
01:00:48,160 --> 01:00:52,560
experience and you know who,
who've learned how to navigate

1208
01:00:52,560 --> 01:00:55,400
these and build sustainable
platforms that that do it really

1209
01:00:55,400 --> 01:00:57,040
well.
You know, when we talk about

1210
01:00:57,040 --> 01:01:00,000
managers, I mean, you know,
there's there's investment

1211
01:01:00,000 --> 01:01:02,840
committees, there's, you know, a
deep amount of in house

1212
01:01:02,840 --> 01:01:07,600
technical expertise.
Yeah, there is a lot of of

1213
01:01:07,600 --> 01:01:11,000
people behind the scenes, you
know, thinking through, you

1214
01:01:11,000 --> 01:01:13,560
know, what this might look like
doing a lot of work very hands

1215
01:01:13,560 --> 01:01:16,520
on in managing these
investments, you know, through

1216
01:01:16,520 --> 01:01:20,520
the way there.
It's not, I think you know, a

1217
01:01:20,520 --> 01:01:23,640
handful of people just, you
know, pocketing a lot out of it.

1218
01:01:23,640 --> 01:01:27,800
There is some generally some
heavy lifting to be done and and

1219
01:01:27,960 --> 01:01:30,680
that's why the the fees are
there and there's incentives.

1220
01:01:30,680 --> 01:01:34,920
But it could, yeah, it could.
It's it's somewhat self-serving

1221
01:01:34,920 --> 01:01:37,240
as well.
If you were there and the

1222
01:01:37,240 --> 01:01:39,840
capital's available and you're
raised to all these funds, yes,

1223
01:01:39,840 --> 01:01:48,520
you could have a lot of GNA.
If you were like, if you were an

1224
01:01:48,520 --> 01:01:51,160
LP, for example, like is there a
type of strategy or something

1225
01:01:51,160 --> 01:01:55,080
that you'd be like most most
favourable to like having,

1226
01:01:55,240 --> 01:01:58,520
having, you know, thought about
the, the model as deeply as as

1227
01:01:58,520 --> 01:02:00,200
you have?
Do you think there there are

1228
01:02:00,200 --> 01:02:03,160
some some models that are like
more compelling than not?

1229
01:02:03,600 --> 01:02:07,800
Yeah, definitely, definitely.
I think partnering is really

1230
01:02:07,800 --> 01:02:11,160
important.
I think you know being the only

1231
01:02:11,160 --> 01:02:14,120
source of capital and having a
control equity position means

1232
01:02:14,120 --> 01:02:18,800
you know if there is risks and
you have to follow on fund it's

1233
01:02:19,040 --> 01:02:21,360
you know that could that could
bleed you pretty quick.

1234
01:02:21,600 --> 01:02:24,800
So having you know one or two
other you know groups in there

1235
01:02:24,800 --> 01:02:27,280
that are aligned and that might
actually be some other PE funds

1236
01:02:27,280 --> 01:02:30,320
that you know you're just Co
investing on similar terms in

1237
01:02:30,320 --> 01:02:31,840
the same parts of the cap
structure.

1238
01:02:31,840 --> 01:02:33,560
So having.
If we do that with Aussie Super,

1239
01:02:33,560 --> 01:02:36,200
sometimes it'd be a.
Yeah, look, yeah, Aussie Super

1240
01:02:36,200 --> 01:02:41,360
was in there on Pilgrim Minerals
and in Genesis to I think more

1241
01:02:41,360 --> 01:02:44,480
on some other projects have been
financed where, you know, you

1242
01:02:44,480 --> 01:02:47,880
see a whole group of PE funds
there in similar parts of cap

1243
01:02:47,880 --> 01:02:49,920
structure.
So having some partners there

1244
01:02:49,920 --> 01:02:53,520
and and maybe it's even a trader
there who has the off take, but

1245
01:02:53,520 --> 01:02:56,280
it's also in similar parts of
the capital structures.

1246
01:02:56,280 --> 01:03:00,240
You, you know, someone who's
also incentivized for the equity

1247
01:03:00,240 --> 01:03:02,160
to do well as well.
They're not going to give you

1248
01:03:02,160 --> 01:03:05,400
aggressive terms because they've
got a bit of equity too.

1249
01:03:05,400 --> 01:03:09,640
So having just everyone aligned
and and having the the capital

1250
01:03:09,640 --> 01:03:12,840
providers relatively
diversified, I think that makes

1251
01:03:12,840 --> 01:03:15,720
a lot of sense.
The, you know, the average, you

1252
01:03:15,720 --> 01:03:18,600
know, capital cost to build a
project has been increasing and

1253
01:03:18,720 --> 01:03:21,400
will continue to capital
intensities rising.

1254
01:03:21,760 --> 01:03:23,840
You know, there's inflation in
the sector as well.

1255
01:03:23,840 --> 01:03:26,320
So the ticket size that a lot of
these funds, right, if they've

1256
01:03:26,320 --> 01:03:29,120
got a billion dollar fund and
they do, you know, 5 to 10

1257
01:03:29,200 --> 01:03:31,760
investments, that can be a
hundred $200 million checks.

1258
01:03:31,760 --> 01:03:34,000
It's not enough to build these
projects on their own anyway.

1259
01:03:34,400 --> 01:03:37,040
So partnering up I think makes a
lot of sense.

1260
01:03:37,360 --> 01:03:40,480
Keeping these things private
through construction, I think

1261
01:03:40,480 --> 01:03:42,720
makes a lot of sense.
Construction ramp up's a really

1262
01:03:42,720 --> 01:03:47,880
tricky time for a project.
There's a lot of surprises, you

1263
01:03:47,880 --> 01:03:50,080
know, they don't go smoothly.
You know, there's a lot of

1264
01:03:50,480 --> 01:03:52,040
people learning about the ore
body.

1265
01:03:52,040 --> 01:03:54,360
There's ore body knowledge,
understanding, you know, the

1266
01:03:54,360 --> 01:03:58,400
metallurgy, geometallurgy, the
variations there and you know,

1267
01:03:58,440 --> 01:04:00,840
how the plant performs, where
there's the bottlenecking

1268
01:04:00,840 --> 01:04:02,320
needed.
You know, there's a lot of

1269
01:04:02,320 --> 01:04:04,880
things to iron out.
You know, if you didn't have to

1270
01:04:04,880 --> 01:04:08,160
do quarterly updates, you know,
I think that'd be a great thing

1271
01:04:08,440 --> 01:04:12,160
as you can, you know, ramp up
this properly, get it set up and

1272
01:04:12,160 --> 01:04:13,920
then take it to the public
markets.

1273
01:04:14,080 --> 01:04:19,160
I think that'd, that'd work
great and that that would be a,

1274
01:04:19,280 --> 01:04:21,960
a nice strategy.
I think you couldn't do that for

1275
01:04:21,960 --> 01:04:24,240
your whole fund.
Yeah, you don't want to take,

1276
01:04:24,520 --> 01:04:26,680
you know, that sort of
construction risk at the same

1277
01:04:26,680 --> 01:04:28,480
time, you don't want to be
building 2 projects at the same

1278
01:04:28,480 --> 01:04:29,520
time.
So you probably don't want more

1279
01:04:29,520 --> 01:04:31,800
than half your portfolio in
construction.

1280
01:04:31,800 --> 01:04:34,800
So just having a a blended
approach to, you know, in

1281
01:04:34,800 --> 01:04:37,160
construction projects, but also
finding these, you know, turn

1282
01:04:37,160 --> 01:04:39,880
around opportunities, M&A
opportunities, finding, you

1283
01:04:39,880 --> 01:04:42,840
know, just great management
teams you want it back and you

1284
01:04:42,840 --> 01:04:47,520
know, corner stoning their next
acquisition investment things.

1285
01:04:47,560 --> 01:04:49,960
Having a really diversified
rounded out approach.

1286
01:04:49,960 --> 01:04:53,920
But yeah, mix of private
investments in the fund would

1287
01:04:53,920 --> 01:04:55,880
make a lot of sense.
Partnering with other groups.

1288
01:04:56,520 --> 01:04:59,160
Yeah, just having a small
mounting construction, the rest

1289
01:04:59,160 --> 01:05:03,200
in sort of operating strategies
have a little bit more, you

1290
01:05:03,200 --> 01:05:05,680
know, different kind of
strategic drivers there.

1291
01:05:06,680 --> 01:05:10,080
That would be a great fund if I
was doing it.

1292
01:05:11,160 --> 01:05:12,760
I'm with you there.
I'm sure there's a lot of

1293
01:05:12,760 --> 01:05:15,040
managers out there that would
love to not quarterly report as

1294
01:05:15,040 --> 01:05:16,520
well.
I think that'd be helpful for

1295
01:05:16,840 --> 01:05:18,640
for a lot of folks out there.
And the fees would be a little

1296
01:05:18,640 --> 01:05:20,600
bit different.
I think I would keep it pretty

1297
01:05:20,600 --> 01:05:23,960
lean.
I think, you know, if you can

1298
01:05:24,040 --> 01:05:27,160
raise sort of a billion dollar
fund and you're making 510

1299
01:05:27,160 --> 01:05:32,680
investments, you know, do you
really need an enormous team to

1300
01:05:32,680 --> 01:05:35,120
find opportunities?
You know, I think that's

1301
01:05:35,120 --> 01:05:37,800
probably an area where you can
be very targeted in what you

1302
01:05:37,800 --> 01:05:39,720
want to go after.
So you don't need a huge amount

1303
01:05:39,720 --> 01:05:43,520
of resources there managing it.
Yes, you definitely need yeah, a

1304
01:05:43,720 --> 01:05:46,720
good team that to be involved
with the portfolio companies

1305
01:05:46,720 --> 01:05:50,160
there.
But you know, do you need to do

1306
01:05:50,160 --> 01:05:53,080
in house everything in terms of,
you know, finance, accounting,

1307
01:05:53,080 --> 01:05:55,640
legal, maybe you can outsource a
lot of that and just run with a

1308
01:05:55,640 --> 01:05:59,360
really lean headcount.
Yeah, maybe that, that is model

1309
01:05:59,360 --> 01:06:03,400
to have a really lean management
fee so you can keep a small,

1310
01:06:03,400 --> 01:06:06,400
small team and yeah, weight it
towards you know, your

1311
01:06:06,400 --> 01:06:09,840
performance fee to really, you
know, be incentivized.

1312
01:06:10,200 --> 01:06:12,560
Yeah, that's a, that's a real
point of difference with just

1313
01:06:12,560 --> 01:06:15,840
out and out equity investors
that the team size is a a huge

1314
01:06:15,840 --> 01:06:18,360
point of difference.
Fraser, this has been

1315
01:06:18,360 --> 01:06:20,640
spectacular mate.
I've really enjoyed learning all

1316
01:06:20,640 --> 01:06:22,880
about the, the PE world and I'm
sure all the money miners have

1317
01:06:22,880 --> 01:06:24,520
as well.
So thank you for coming and and

1318
01:06:24,520 --> 01:06:25,720
sharing all your wisdom with us
mate.

1319
01:06:26,400 --> 01:06:28,080
Thank you.
Just just a few gems.

1320
01:06:28,920 --> 01:06:31,600
Mate, that was, that was unreal.
A massive thank you to our

1321
01:06:31,600 --> 01:06:34,920
wicked partners, Sandy Ground
Support, Intralinks.

1322
01:06:34,920 --> 01:06:36,920
Check them out.
Focus the platform by market

1323
01:06:36,920 --> 01:06:38,360
tech.
You should do it over my

1324
01:06:38,360 --> 01:06:41,280
shoulder most times.
We've also got a big thank you

1325
01:06:41,280 --> 01:06:44,600
to make to exceed capital and
last but not least, switch

1326
01:06:44,600 --> 01:06:46,800
technologies.
Check out our local engineers

1327
01:06:46,880 --> 01:06:49,840
right here in Northridge, mate.
Budry money manas budduru.

1328
01:06:51,320 --> 01:06:54,160
Now remember, I'm an idiot.
JD is an idiot.

1329
01:06:54,480 --> 01:06:56,600
If you thought any of this was
anything other than

1330
01:06:56,600 --> 01:06:59,280
entertainment, you're an idiot
and you need to read out a

1331
01:06:59,280 --> 01:06:59,720
disclaimer.