Here's a little reading material for a nice slow Easter weekend; small RCF mentioning.

Happy Easter.

TM.

http://www.miningmarkets.ca/news/why-private-equitys-mining-shopping-spree-hasnt-yet-begun/1003000371/?&er=NA

Why private equity's mining shopping spree hasn't yet begun

Interview with Minvest Partners' Stephen Stewart

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2014-04-07

While there’s been a lot of news over the past couple of years about private equity firms and all the billions of dollars they’re raising to invest in the mining sector, there haven’t been all that many deals announced.

But Stephen Stewart, a managing partner of private equity startup Minvest Partners says there has been some action happening behind the scenes.

“There have been a number of deals completed, but not a lot of it’s necessarily publicized,” Stewart said in an interview with TNM TV at this year’s Prospectors and Developers Association of Canada convention.

Stewart notes that some of these are smaller deals, such as the recent $58.8-million hostile bid for Chaparral Gold (TSX: CHL) by Toronto-based Waterton Global Resource Management.

As for the larger private equity firms, they do larger deals that aren’t necessarily disclosed.

“For example, you’ll have KKR buy an asset from Rio Tinto for $500 million or $200 million. If that happens, that’s not even necessarily material information (for a company like Rio),” he said.

Another reason more deals haven’t materialized is that private equity takes longer to evaluate transactions.

“These private equity guys are in it for the long term and that’s why they do due diligence significantly more intensely and are much more selective,” Stewart said. “So I think you’ll see they take a little more time to do a deal, but they’re there, they’re looking, and I think over the next twelve to eighteen months you’ll see a lot more activity that is in the public space.”

Larger private equity firms like KKR, Apollo Global Management, and Carlyle Group have been drawn to the mining sector in the past couple of years by low valuations.

However, Stewart notes that smaller private equity groups, such as Resource Capital Funds and Waterton found a niche in the mining sector well before the recent interest.

And although the popular conception of private equity remains focused on the leveraged buy-out model, private equity is in reality, very flexible in its approach to making money.

“It’s not just a debt thing, they’ll definitely make equity investments, they’re very much into hedging their bets, whether it’s hedging commodities or finding some other creative way to protect their downside while maximizing their upside,” Stewart says.

“The bottom line is private equity is no more than a group of sophisticated money managers managing money for large institutions — be it sovereign wealth funds, pensions, or other institutions, and these guys have a mandate to invest in a particular type of investment, be it mining, or sometimes it’s more specific. Minvest, for example, is more geared towards gold, but the larger guys will have larger mandates, and it’s really to go out and make money as creatively as you can, and make as much of it as you can.”

Is there anything investors can learn from private equity’s approach to investing?

Unfortunately, probably not. Stewart says investors shouldn’t blindly follow private equity’s investing moves because their approach is very sophisticated and involves planning for the worst.

“To use an example, they won’t just buy a share in a company and hope for good times, despite all their due diligence,” Stewart says. “They would buy a share in a company and hedge their downside on a commodity bet and there’s all sorts of creative ways that they would protect themselves that, to be honest with you, the typical retail investor probably is not capable of doing those type of investments.

“So my advice to the retail community is take the headlines with a grain of salt: if you see private equity investment, if you see someone going after a particular asset, don’t buy shares in that asset, because the private equity firm has done something else besides what you’ve just seen.”