Fund focus: LPs get more choice with Denham

For its latest fund cycle, Denham Capital is trying something new. Rather than raising a single vehicle to invest in its core sectors of oil and gas, mining, and power, the resources-focused GP is splitting its mandate into separate funds for each vertical.

The first product of this shift in strategies is the Denham Mining Fund, a vehicle for metals and mining that recently closed at $558 million. The fund, along with its planned sister vehicles, is expected to satisfy a long-held request made by Denham’s investors.

“When you have a co-mingled fund, you basically make the sector allocation decisions for the LPs,” says Bert Koth, managing director and partner for the Denham Mining Fund. “But our LPs have said, ‘We don’t need you to make that call – we’ll decide for ourselves what percentage we want to have in oil and gas, mining, and power.’”

Other than the structuring of the funds, investors were clear that they didn’t want any more changes from the GP, which now has about $9.8 billion in assets under management. Denham expects its well-tested investment strategy to help it continue to build a strong franchise in global markets including Australia, Canada, South America, and Africa.

Operating platforms to which Denham provides capital for acquiring and developing assets are central to the fund’s strategy. The GP adopted this approach from the oil and gas sector, believing success in both areas is closely tied to quality of management. Denham already controls Pembroke Resources and Auctus Minerals, focused respectively on metallurgical coal and minerals in Australia, and sees these as templates for the new vehicle.

“In the mining industry there’s a scarcity of management talent that can be beckoned to private equity,” says Koth. “If we go in up front and secure the best possible people, and then through those people develop the assets, we can establish a competitive advantage for ourselves over most other market participants.”

Denham typically seeks experienced regional management teams to head its platforms: Pembroke was formed by the management team of Gloucester Coal, while Auctus is headed by former Karara Mining CEO Steve Murdoch. The firm refers to this approach as “backing locals in their back yard,” and feels that it ensures its platforms have a deep reserve of local sector expertise to identify acquisition targets. After purchases, teams add value by bringing assets into production, growing active assets, or increasing the project lifespan.

“We have seen and continue to see quite a number of opportunities, globally but also in Australia specifically, that fall into this category,” Koth adds. “There’s a lack of development capital in metals and mining, and a lot of assets are also operationally stranded because their owners can’t operate or develop them. So there’s a significant opportunity set that we see in the Australian market.”   

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• Topics
• Australasia
• Fundraising
• Infrastructure
• Australia
• Denham Capital
• resources
• Commodities