The slowdown comes as junior miners have seen options such as stock market listings become less attractive amid depressed valuations after commodity prices for nickel, cobalt and lithium have collapsed in recent years. Companies are struggling to raise capital just as global demand for base metals and critical minerals is set to take off amid a rush to join the energy transition.
“We’re in the infancy of a secular change in commodities usage. We still have decades to run,” Michael Scherb, founder and CEO of Appian Capital Advisory, a London-based, mining-focused private equity firm, said in a mid-February interview.
“The world will always use commodities,” added Scherb, whose firm manages about US$3.5 billion and recently closed its third fund.
US$5.4T in demand
Global miners will need to spend at least US$5.4 trillion on capital expenditures by 2030 to meet future demand in mining, according to a McKinsey & Co. forecast. Much of that sum will need to come from private sources.
Trends such as electrification are boosting mining’s appeal as a long-term investment, said Martin Valdes, head of private equity strategy at Resource Capital Funds (RCF). Investors will have to identify which minerals are best placed to ride the energy transition wave.
Aluminum, copper and lithium are among the metals that could face deficits in primary supply this decade, according to an October forecast by Bloomberg NEF.
“Everyone wants to be part of the energy transition,” Valdes said in an interview from Miami. “People are trying to figure out what are the new technologies that are coming, and what are the commodities that will be needed to satisfy the new technology.”
That optimism isn’t translating into sustained deal flow just yet.
Private equity down
Private equity investments in mining dropped to US$4.76 billion during the first nine months of 2024 from US$8.79 billion a year earlier, S&P says. Third-quarter deal value plunged 80% to US$240 million.
The situation is even worse in Canada. Private equity firms invested a mere $5 million in mining during 2024, Canadian Venture Capital and Private Equity Association data show. That’s a fraction of the $27.5 billion in private capital that was deployed across 658 deals.
To John Burzynski, Osisko Metals’ (TSXV: OM) executive chairman, private equity remains a fringe player in the financing market for miners, especially for early-stage projects.
“The PE funds have become more active in the space over the last 10 or 15 years, but I wouldn’t say they’re a mainstream part of the financing available to mining companies,” said Burzynski, whose Toronto-based company is working with Appian to advance the Pine Point zinc project in the Northwest Territories.
Private equity firms “have taken advantage of a weakening financing market for junior miners,” he added. “Step in, buy the company at a premium, get the work completed, wait for the cycle to turn and sell it for a multiple of what they bought it for – this is how they make phenomenal returns.”
Canadian miners have been hit hard by a shift from retail investors away from actively managed mutual funds into exchange-traded funds, Burzynski said.
Whereas mutual fund managers would routinely finance miners through private placements, “nowadays there’s only about a quarter of the institutional investors available for mining companies whose door you can knock on if you’re doing a private placement,” he said. “ETFs don’t participate in private placements. That leaves a smaller pool of capital to chase for companies.”
PE’s helping hand
Private equity’s interest is timely, said mining veteran Robert Quartermain.
“PE is good for the market in that it provides us another financing mechanism, particularly for development,” Quartermain, Dakota Gold’s (NYSE-A: DC) co-chair and CEO, said from Vancouver.
Quartermain’s involvement with private equity goes back to the time he was running Pretium Resources and trying to develop British Columbia’s Brucejack mine. In 2015, Pretium raised US$540 million from Orion Mine Finance and Blackstone via a financing package that included a loan and a streaming agreement.
In 2023, after moving to Dakota Gold, Quartermain again turned to Orion for a US$17 million investment, a royalty agreement and a commitment for future financing.
“Private equity has been able to come in and participate in the landscape where conventional financing that we would have used a decade ago is not available to all projects,” he said. “They curate their financing to the projects and have components that often conventional lenders wouldn’t have. Private equity groups will continue to grow.”
Mining and private equity are well suited to each other, Scherb argues. Firms often lock up their investors’ capital for at least 10 years, giving company executives the freedom to make long-term decisions.
“Contrast that with hedge funds, retail or public institutions, which don’t provide CEOs with the bandwidth to create value through a cycle,” Scherb said. “If a mining company takes our money, they know that we’re going to be patient working through things.”
Regulatory headwinds
Access to financing isn’t the only issue facing miners. Regulatory hurdles, too, are making it harder to produce. It now takes 17.9 years on average to build a copper mine, up from 12.7 years a decade ago, according to data compiled by Appian.
Even so, there’s rarely been a better time for patient investors to finance quality mining projects, Valdes said.
“Public valuations are still not reflecting that upside scenario that we’re all seeing three, five or seven years down the road,” he said. “Prices don’t reflect the fundamental value, and this dislocation creates opportunities for taking some of these companies private. This is something that we’re looking at very actively.”
The critical metal crown
As he looks towards the next decade, Valdes says he’s particularly excited about copper’s prospects and lithium iron phosphate (LFP) batteries.
“There are certain commodities that are for sure going to play a fundamental role in the energy transition, and copper is one,” he said. “Lithium is another. Battery technologies are changing but it’s fair to say that LFP, which requires a lot of lithium, is going to be one of the surviving technologies.”
Based in Denver, RCF oversees about US$2.2 billion. The funds it manages hold stakes in companies such as Canada’s Iamgold (TSX: IMG; NYSE: IAG) and Norzinc, Chile’s Pucobre and Liberty Gold (TSX: LGD).
Appian’s Scherb shares Valdes’s optimism about copper. He also expects sustained demand for silver, gold and critical minerals. Base metals such as copper, nickel and zinc represent around 60% of Appian’s portfolio, he said.
“Silver is great. It provides inflation protection that gold does. At the same time, it goes into solar panels,” he said. “We like copper for the same reasons that every investor is going after. We also like critical minerals.”
Acquiring mining assets means investors must also factor geopolitics into their decision-making – a trend that Scherb says “didn’t exist even five years ago.”
Geopolitics “is just a massive trend in the mining industry,” said Valdes.
“Every conversation we have with governments leads on the topic of geopolitics in terms of the best way to invest in critical minerals,” Scherb added. “China, the E.U. and the U.S. will go after certain critical minerals. Our job is simply to figure out what those are and develop those wherever we can find them around the world.”
