5 April 2016 – Owen Hegarty’s new mining fund suggests the sector might bounce

Home / Media / 5 April 2016 – Owen Hegarty’s new mining fund suggests the sector might bounce


Owen Hegarty’s private equity vehicle EMR Capital is raising a second fund of up to $US750 million ($976 million), after a year spent buying six assets with its maiden $US450 million fund.

Mr Hegarty thinks commodity prices are bouncing along the bottom, or close to it, and private equity deals in the mining sector will increase this year.

“We are not calling false dawns, but there are a few clues that we might be at the bottom or we can see it from here,” Mr Hegarty told The Australian Financial Review.

“Copper is at $US2.20, not $US2, iron ore has popped up from the $US40s to $US50s, oil is $US38, not $US28, gold is at $US1250, not $US1050, and even coking coal has picked up a bit.

“We’ve had a lot of people asking that – are we there [at the bottom] yet? Because it [the commodity price rout] has gone on longer than expected.”

Capital for second fund

He was speaking to the Financial Review from North Sumatra, where Melbourne-based EMR has bought a gold mine from capital raised for its first fund, launched in January last year. About 80 per cent of that fund has been spent or committed to projects.

EMR chief executive Jason Chang said the firm is in talks with existing and new investors about raising capital for the second fund. He would not confirm the amount he was trying to raise, or the target time frame. However, it is understood that EMR is aiming for $US750 million.

 “We are still very much in the conceptual phase,” said Mr Chang. He was speaking from Indonesia, where EMR is bedding down its joint acquisition of gold and silver mine Martabe.

“We get queries, some from existing and some from new investors, who have seen the work we have done in fund one, so they are very interested in what we are doing.”

There is a long list of the new breed of mining specialist private equity vehicles that are yet to buy anything meaningful – or anything at all. Among those is Mick Davis’ $US5.6 billion fund, X2. Mining veteran Hugh Morgan is still to win over investors for his mining-focused private equity outfit, Arete Capital Partners, about 12 months after launching the venture, as revealed by the Financial Review last week. He is trying to raise about $2 billion.

“We are of course very keen to be moving forward, but we are matching that keenness with an appropriate caution on our own personal behalf, as well as [on behalf of] the investors,” Mr Morgan told the Financial Review last week.

Belief in resources sector

The verdict remains out on whether private equity is a good fit for mining assets.

Mr Hegarty said it was hard to tell why more deals had not been done but he expected the hit rate would improve this year.

“I’m not so sure. There are certainly plenty of opportunities out there, they are being presented to us with velocity – because there is no public equity available, valuations are being smashed, bigger companies are deleveraging and selling assets.

“I think the strike rate will increase this year and when the macro market clues we are seeing turn into some harder evidence.”

 The four commodities EMR has bought in – and wants to continue to buy in – are potash, copper, metallurgical coal and gold.

Mr Chang said the firm’s investment strategy was not dependent on commodity prices going up.

Mr Hegarty also said: “We are not trying to pick the bottom here.

“Part of our model isn’t waiting for the rising tide to lift all ships.

“We are using our long, strong experience and our focus on cost positions to ensure we can select assets that add significant value that will withstand all cycles – withering or unwithering.”

Mr Hegarty remains convinced about the long-term outlook for the resources sector, particularly the four commodities EMR is targeting.

“We are long, strong believers in the resources sector and its continued growth, led by China, with India and the rest of the developing world all following and chipping in over the longer term.”


by Amanda Saunders

The article can be accessed by click here.