Appian wants investors to dig deep and back mining sector
A LONDON-BASED private equity fund aims to raise around $1.2bn (£1bn) to provide long-term backing to smallscale mines around the world.
Appian Capital, led by former JP Morgan banker Michael Scherb, is sounding out investors for its second fund, with a view to striking around eight separate deals at a value of $100m-$150m each.
The company launched its first fund in 2014, spending $375m on investing in eight projects worldwide. Five of these are now producing mines, and it has already sold two assets.
Mr Scherb said the traditional funding model of the mining sector was “effectively broken” as typical investors were too short-termist, not having the patience to sit through the development of mines – which can take years. Mining needs long-term capital – the industry needs to evolve,” he said.
Mr Scherb said he expected more private equity to flow into the sector over time, but “capital scarcity” meant his firm had plenty of choice in what to invest in with few direct competitors.
Last year, Appian ran the rule over 409 projects but chose to invest in just three. Unusually for a private equity fund, it has geologists and analysts on staff who look at the raw data from mining companies before deciding on a deal, rather than outsourcing due diligence to third parties.
The company is looking for smallerscale projects where there is an opportunity grow margins.
Mr Scherb added: “In mining, bigger is not always better – margin is better.”
Appian prefers to invest in mines producing so-called “mid-cycle” commodities such as copper and nickel, high in demand as people in populous countries such as China begin buying more consumer goods. A further quarter of its investments are in gold mines.