Article from Global Mining Observer: Owen Hegarty: $2bn and Counting – Hegarty’s private equity firm, EMR Capital, has hit a rich seam of Business

Home / Media / Article from Global Mining Observer: Owen Hegarty: $2bn and Counting – Hegarty’s private equity firm, EMR Capital, has hit a rich seam of Business

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By: Alex Williams:

Last summer in Melbourne, a group of politicians descended on a hotel overlooking Melbourne’s botanic gardens.

There was John Brumby, Victoria’s former premier, who is now chairman of a business council linking Australia to China. There was Ted Baillieu, another Victoria premier, who took 600 Australian executives on a trip to China in 2012, pulling together the largest trade delegation ever to land in Beijing. There was also Richard Alston, an Australian senator who served as High Commissioner to the UK, plus the Consul General for Indonesia and the Consul General for Chile. Business bigwigs in attendance “were too numerous to mention”, one account of the evening said.

The man behind the invites was Owen Hegarty, an aristocrat on Melbourne’s mining scene, whose private equity firm, EMR Capital, had just closed its second fund, pushing its assets through $2bn.

As other private equity firms have failed to gain any traction in the mining industry, EMR has rattled through deals, pulling-in capital from China and the US, whilst pulling the strings behind dozens of mining assets in gold, copper, potash and coking coal.

“I’d have to describe myself as very lucky really,” Hegarty says, speaking from an investor meeting in Los Angeles. “But you tend to make your own luck by going very hard at it.”

Hegarty led Rio Tinto’s copper business in Australia, running mines, smelters and concentrate trading. He had joined from university and worked his way up, but after 25 years, jumped “to the small end of town”, founding Oxiana Limited, a micro-cap mining stock. By building-out mines in Laos, Australia and Indonesia, Hegarty grew Oxiana into a multi-billion dollar copper-gold company, which he now refers to as “the mighty Ox”. But by 2009, Hegarty had decided that he wanted his own capital pool.

The market can be “hard yards”, he says. “Inside the Ox, I spent 100 per cent of my time raising capital, 100 per cent of my time telling people about the company in the public markets, and 100 per cent of my time doing my day-job. One of the most frustrating things was that you’re beholden to the market. It doesn’t matter how good your people and your projects are, if the market’s not open, you’re dead in the water, you can’t raise the money.”

Around the same time, Hegarty bumped into Jason Chang, a lawyer and tax specialist running the Asia desk at accountancy KPMG. Hegarty was on the board of iron ore giant Fortescue and KPMG had helped broker a A$1.2bn investment in Fortescue’s stock by a steel group in southern China. “I was not in the ruck of the detail, but KPMG was somewhere in there as an advisor and Jason was somewhere inside KPMG.”

Whilst Hegarty was plugged into every mine-build run out of Australia, Jason Chang was dealing daily with Asian firms wanting to buy into mining assets. The pair teamed-up and EMR was founded.
As metal prices tanked in the years that followed, several private equity groups sprung-up, hoping to pick-up bargains. Mining boss Mick Davis raised $5.6bn for a vehicle in London, whilst New York-based private equity group Warburg Pincus earmarked $1bn for mining acquisitions.

Both funds have been unwound, having failed to land any deals, but EMR Capital has veered in the other direction, diving into unfashionable investments that were either short of capital or in need of a technical blitz, from Toronto-listed Crystal Peak Minerals in Utah to Hong Kong-listed G-Resources in Indonesia. “You’ve got to go where the orebodies are,” Hegarty says. “That’s the mining business.”

The result has been some spectacular wins: one $10m investment that EMR made in Highfield Resources (focused on potash outside Pamplona) rose twelve-fold in two years. NexGen Energy, a uranium play backed by EMR’s founders, has meanwhile unearthed a discovery in Canada’s Athabasca basin.

“We’re not waiting around here letting grass grow around our feet,” says Hegarty, who expects to have fully invested EMR’s second fund “in the next year or two… then you might be back into fund-three mode. You could go again. I’m a serial investor here. I continue to be involved in the mining business and I don’t know how to do anything else.”

One factor behind EMR’s success could be that Hegarty, now in his late 60s, has always remained an unabashed bull on Asia and metal prices. Other private equity funds that were founded to capitalise on falling prices struggled to get off the diving board, because deals looked pricey for anyone with a negative outlook. But Hegarty has no such qualms. In copper and gold, he says, “demand is going up forever and it isn’t going to stop.”

Having initially focused on listed investments, EMR is increasingly buying assets outright, paying $210m for the Golden Grove copper-zinc mine in Western Australia (an asset that once sat inside Oxiana) and $775m for the Martabe gold mine in Indonesia (an asset Oxiana owned before it came into production).

“We’ve got that long-strong-deep operational experience, so we’ve got to have control,” Hegarty explains. “Or there’s got to be a pathway to it. You can’t just be there for the ride. We’re not watching things on a screen.”

Commanding his own fund means Hegarty can now backstop his own investments. “It takes an element of risk out and you can concentrate on the work that you do best, which is build-own-operate-grow-develop-improve, rather than working the market all day long.”

EMR is not the only private equity group thriving in the mining industry. Denver-based RCF, which was originally spun-out of investment bank Rothschild, promises large investors a two-times return over the life of its 10-year funds, raising $2.5bn for its seventh fund last year.

EMR’s funds also have a 10-year lifespan, “but we like to be gone by about five,” Hegarty says. “You’ve got to have that exit in mind. Can you get in and do the feasibility study and then get out? Can you get in and build it and get out? At some point they have to go, so you start with that in mind.”

He describes EMR as his “last stanza” and “the main game really for the rest of my career.” But could EMR’s Australian copper assets be bundled-up into a single company listed on the ASX? “There isn’t much in the base metals space in Australia,” Hegarty says. “You’ve got Oz Minerals, you’ve got Sandfire, and then you run out. But we’re not trying to rebuild Oxiana here, or rebuild Rio Tinto. The empire we’re trying to build is EMR Capital.”

At EMR’s office in Melbourne meanwhile, Jason Chang has a photo on his desk of an Australian politician at the signing of an agreement between EMR and a bank in China. By positioning themselves bang in the middle of the channel of resources and money that flows between Australia and China, Hegarty and Chang have quickly built a prolific business.