Denham mines Pembroke talent

The company was eventually acquired by China's Yanzhou Coal but the management team stayed together, forming Pembroke Resources. There was no shortage of potential investors on the other end of the phone. One of those to call up was Bert Koth, a director with Denham Capital, who spied a golden opportunity to back one of Australian mining's premier teams.

"We compared many entrepreneurial coal teams in the Australian and Asian markets over an extended period of time and decided this was the one with whom we should associate our capital," says Koth. "Barry Tudor and his team delivered with Gloucester Coal one of the most impressive success stories in the Australian coal industry. So this is a bet that the same team can do it again."

Denham makes direct investments in the energy and resources sectors, including businesses involving mining, power generation and oil and gas, across the globe and at all stages of the corporate lifecycle.

It invested $200 million in Pembroke to help develop a portfolio of metallurgical coal (met coal) assets across Australia, New Zealand and Indonesia. The team - which also includes Mark Sheldon and Craig Boyd, former COO and CFO of Gloucester, respectively - will target small but potentially highly profitable projects that are undeveloped, under construction or have just started producing.

By targeting met coal Pembroke is taking something a contrarian view. The price of the material, which is used in steel-making, dropped in 2013 to one third of the record high of around $300 a ton posted four years earlier. However, Koth maintains that met coal presents an attractive opportunity. Unlike thermal coal, which is used in power stations, metallurgical coal does not have to be produced in big volumes to be profitable.

"The world cannot live without coal, thermal or metallurgical," he says. "Metallurgical coal is of particular interest because valuations are low but it is a high-value product that cannot be eliminated from the blast furnace unless you shut the whole steel mill down."

Pembroke will target a range of sellers, from mining majors and mid-tier players shedding assets all the way down to the distressed junior miners that have been in plentiful supply after Australia's decade-long mining boom came to an abrupt end.

Koth adds expects the lifespan of the investment to be 4-6 years, with a substantial return - perhaps courtesy of another Chinese strategic buyer - waiting at the end.

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