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Private equity 'here to stay' in mining sector

Seasoned private equity executives who target mining voiced bullish views about the sector at the Prospectors & Developers Association of Canada conference in Toronto. Here's a snapshot of what some of them said during a panel discussion:

Andrew Latham, head of Rio Tinto Ventures (part of Rio Tinto)

Latham called Rio Tinto's view of the mining cycle as "reasonably optimistic" so long as global synchronized growth continues. He noted the mining sector has had two good years of gains. That could continue on the back of ongoing economic growth. "Can I call that an up cycle?" he asked. "I don't think we're sure yet." He also pointed out, from a private equity point of view, that if the mining cycle picks up steam and investors return, giving mining companies more options to raise cash, private equity could suffer. "I think that's a mixed message for us," he said.

Cheryl Brandon, Waterton Resource Management partner

Brandon expects that private equity, historically not a huge player in the mining sector, is "here to stay." During the recent bear years for miners, private equity applied a significant amount of capital to juniors supporting, for a price, their operations when equity markets retreated. She doesn't expect a bull market to reverse the score for private equity, however. She noted the equity market has increasingly turned to passive investments, which avoid juniors. "The unfortunate thing for the junior mining sector is passive funds do not invest in junior mining companies," Brandon said. She also wondered if strategic private placements by major and intermediate miners in the sector, which boomed in 2017, could keep up the pace. "That's something that worked in 2017," she said. "I'm not sure it's something that can continue forever."

Douglas Silver, Orion Resource Partners portfolio manager

Silver pointed out that markets tend to recover from deep troughs by going hyperbolic. He doesn't think that will be the case for miners. He sees the market taking a slow flight path up, with more investors coming back to the sector in the years to come. "They're all in bitcoin, but they'll be back in a week or two," Silver said. One question he raised is based on the fact that so many juniors are invested in the gold sector, which has long driven junior exploration. He asked, if price of gold doesn't boom, which it won't in his view, what can juniors sell to investors? What's the driver?