PRIVATE EQUITY METAL

His grandfather ran a copper mine in Burma, his father sat on the board of Rio Tinto – Paul Espie has mining in his genes, and has used his affiliation with the sector to chisel a lucrative career.

Formerly an investment banker working for Bank of America in Australia, Sydney-based Espie became a financial entrepreneur in 1986 when he founded Pacific Road Group, a corporate finance boutique specialising in resources, power and infrastructure companies. Some 20 years later, armed with the track record built since then, Espie and his colleagues decided to take Pacific Road into asset management. More specifically, a plan was hedged to raise a private equity fund to finance deals in, you guessed it, the international mining industry.

Closed in April on a hard cap of $320 million (€207 million) with the help of placement agents JPMorgan Cazenove, the Pacific Road Resources Fund is one of very few private equity vehicles focusing solely on mining-related activities. It will invest in development-stage mining projects in selected commodities and various geographies around the world including Latin America, Africa, Asia, Australia as well as parts of North America.

Limited partners in the fund, according to Espie, include Asian financial institutions and US endowments, some of which decided to invest “after admitting to a huge knowledge gap” about mining at the outset.

To help close the gap and get investors comfortable, Espie told prospective LPs about a wealth of relevant skills and know-how among the Pacific Road team. For example, investment directors Louis Rozman and Lee Graber have more than 55 years of operational experience between them. He also emphasised the firm's longterm outlook as a provider of “patient capital”: “We don't count on current metal prices being sustained indefinitely at all – quite the contrary,” he said in an interview with PEI in May.

In other words, Pacific Road won't lose its mettle even when the current commodities boom grinds to a halt eventually. Espie said part of the firm's strategy was to invest in non-core spinouts from the world's large mining companies, and to use a blend of sector expertise, financial acumen and “common sense” to reposition them for growth.

The fund has already invested in a gold project on Woodlark Island in Papua New Guinea and in zinc and silver projects in the Zacatecas region in Mexico. According to Espie, deal flow is encouraging: “We're deep in negotiations on several things.”