Mining-focused alternative investment firm Resource Capital Funds (RCF) has identified a credit opportunity within the small-cap mining space, after European banks retrenched from lending to the sector after the global financial crisis and Eurozone crisis.
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RCF has provided alternative capital to the mining sector since it launched in 1998, investing with an equity focus before it expanded into four different strategies including credit.
The credit fund will provide project finance and term loans to the mining industry, as well as considering special situations investments.
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“The pullback in liquidity from commercial banks has created an opportunity, and mining finance is specialist, so generalist credit funds haven’t entered the market,” David Halkyard, head of credit at RCF told Alternative Credit Investor.
“As an investor we don’t have to push the boundaries in terms of what we do to win business – it’s not about significantly ramping up leverage or getting rid of covenants, it’s about being there with the liquidity needed.”
Making an impact
The global efforts towards a transition to net zero have boosted the need for mining finance, Halkyard explained, as clean energy solutions are much more metal intensive.
For example, electric cars are six times more metal intensive than vehicles with internal combustion engines.
“It’s an industry with a lack of available capital that needs to deliver huge amounts of product into the market,” he added.
RCF argues that its investments have a net positive impact, despite the environmental effects of operating mines.
“A mine is a source of very well-paid jobs and helps to provide education as mining is a highly skilled profession,” Halkyard said.
“The mines employ many local nationals and contribute significantly to tax revenue. There’s a positive social impact.”
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However, investor perception varies regarding the ESG credentials of mining finance.
“The reaction of investors depends on where they’re based,” Halkyard said.
“Most of our investors are US endowments and pension funds. They do have ESG requirements but it’s not the same process at in Europe, where it’s almost the first thing investors ask.”
While American investors are more open to natural resource strategies than Europe, according to Halkyard, there are plans to expand RCF’s investor base to other parts of the world, such as the Middle East.