Fund focus: EMR mines value-add experience

When EMR Capital closed its first resources-focused fund last year, the Australia-based firm could already tell demand for the second would be high. The initial vehicle had received commitments of $450 million, beating its $400 million target, with LPs showing plenty of appetite.

Interest in the second fund has not disappointed: the target was once again beaten, with US investors featuring prominently in a final close of $860 million. The firm sees this result as a vote of confidence in its investment approach, and plans to continue its focus on long-term value creation.

"We think 2016 will be a unique vintage. We're seeing attractive investment opportunities that weren't here 18-24 months ago," says Jason Chang, CEO and managing director of EMR. "We don't try and work on commodity price cycles. What we want to do is focus on high-quality assets, which will be profitable regardless of commodity prices."

The strategy for the second vehicle is expected to hew closely to that of the first, with the GP identifying a small number of targets - likely no more than six - and seeking controlling stakes in each one. This approach does mean passing on minority interests in otherwise appealing companies, but EMR believes that a concentrated portfolio allows it to exercise the kind of control that is vital in the resources sector.

Chang points to Indonesia's Martabe gold mine, the final investment from EMR's previous fund, as an example of the strategy. The firm took a 61% stake in the mine earlier this year and plans to increase profitability by reducing operating costs, which would be difficult without the leverage afforded by a controlling interest.

"In mining, you really need to be a very active participant, operator and manager of the investment," Chang says. "The team behind EMR have operated and developed mines over a long period of time, very successfully across the entire mining curve, from feasibility through to development through to full scale operation and production ramp up, so we feel that we can offer a lot to the management teams at portfolio companies to help advance and create value."

Copper, gold, coking coal and potash will remain areas of focus, as the firm expects demand for all four to increase, especially from China. Potash in particular, where the firm already owns two mining projects in Australia and Canada, will be highly needed, as urbanization inevitably reduces the amount of land available for cultivation and requires higher productivity on the remaining land.

"Potash will always be a very strategic asset for emerging markets, in China, India, and Brazil," says Chang. "And supply isn't as simple as it seems. A lot of the potash supply coming on stream requires very significant capex, and ultimately may not be that low cost. So there's always going to be demand for low-cost, high-margin, large-scale potash producers."

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• Topics
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• Commodities