Capital is certainly available for mining companies to develop their assets, with debt generally easier to obtain than equity, as commercial banks pull away from the sector and become more risk-averse.
That is the sentiment of Appian Capital Advisory’s Senior Advisor Australia and Asia, Peter Nicholson, who says the global fund is “very active in the market” at the moment.
Speaking to Mining.com.au on the sidelines of Mines and Money Connect Melbourne last week, Nicholson notes that Appian is always on the lookout for solid investment opportunities. And there are plenty of sound investments out there.
Given the size of its fund, Appian’s minimum investment size tends to be US$75 million, in which the firm is an active (and not passive) investor, offering either debt or equity but not the whole funding package.
Nicholson tells this news service Appian is ‘commodity agnostic’ but has firm investment criteria strictly adhered to by an experienced mining team.
“It’s interesting; obviously, the market tends to be driven by short-term players, and as a provider of private capital, we’re a long-term player, so we tend to look through that.
We’re very active in the market right now. The issue for us isn’t around being tentative, it’s around the opportunities that match the management company and the asset with what we’re looking for to get that synergy and ability to move forward together in a partnership over several years.”
The Senior Advisor notes that debt is generally easier for mining companies to raise than equity given commercial banks have started pulling away from project finance as they become more risk-averse.
“On the debt, we are prepared to take more risk than the standard banks do. We like to call it stretch debt, so we tend to be able to offer higher leverage than a commercial bank would be able to offer.
We are more expensive than a commercial bank would offer, but the extra leverage, we believe, more than compensates that in terms of overall equity dilution.”
Nicholson says in terms of debt investment, Appian seeks companies with later-stage assets that demonstrate a clear pathway towards cash flow. As such, debt financing offers the fund a different risk and return profile.
With equity financing, Appian’s investment horizon is less than 6 to 7 years, and the firm will seek a position on the board with an intention to have material influence or control in strategic decisions.
“Companies take comfort in that they know we’re a closed-end fund; we’re going to exit and move on…”
“What we tend to find in mining is companies tend to run pretty lean. Companies take comfort in that they know we’re a closed-end fund; we’re going to exit and move on, which is an opportunity for them to then reconsolidate or restructure and then take over.
But what you get with private capital, particularly with Appian, is the experience of a lot of people who have been in a lot of different stages of mining, and have knowledge and experience in the sector.
The reality is, we will do good deals, and we’re commodity agnostic. If there’s a good deal, we’ll do the work and if it makes sense, we’ll do that deal. I don’t like to get hung up on which commodities we like or don’t like at this point in time, because it changes, and a good deal’s a good deal.”
Nicholson is responsible for origination, transaction evaluation, due diligence, and structuring at Appian. He previously had a 13-year tenure as Australia’s Managing Director of Resource Capital Funds (RCF).
Write to Adam Orlando at Mining.com.au
Images: Appian Capital Advisory