Above: Bert Koth of Denham speaking at Mines and Money Hong Kong in 2012.
Denham Capital is a $7.9 billion private equity firm that was founded to focus on domestic E&Ps, but has since expanded to power and mining. Since its inception in 2004, Denham has invested hundreds of millions of dollars in the natural resources sector. Historically, Denham has focused in the domestic energy space, backing technically sound operators in proven basins like the Eagle Ford and others.
With the mining sector offering deep value from a long-term investment perspective following a +3 year bear market, the private equity giant is looking to set up a $200 million Australian-focused mining venture.
Speaking to The Australian in Perth, the managing director of Denham in Australia, Bert Koth, said the group was about a month away from going live on its latest project.
“I can’t tell you too much, but what I can tell you is it will be focused on improving and restoring the profitability of assets by taking back some of the excesses of the mining boom,” Mr Koth said.
Denham has many investments in the energy, power, and most recently, mining sectors. The model is simple. Management teams come to them looking for money to develop their theses. If Denham's team likes the team and trusts they can deliver, then they will invest. They invest primarily privately, using the public markets as an exit not an entry.
Of the team they will be backing, Mr. Koth said: “It’s a team that is very good in base metals as well as bulk minerals. It’s a team that’s done turnarounds very successfully. I want to leave that team focused on what they can really do best, which is to eliminate every single redundant dollar in the cost structure, and they’ve proven in the past they can do that.”
Denham launched Pembroke Resources earlier this year. Koth and others at Denham recruited ex-Gloucester Coal managing director Barry Tudor to focus on acquiring coking coal opportunities in Australia; a sector that has been especially hammered over the past few years.
“There are a number of companies out there where you can create significant value by applying turnaround-focused value engineering skill set to them, where the current management frankly has not the competence or even the idea this could be done,” Mr Koth said.
He noted that almost all of the significant copper and iron ore projects in the pipeline today have a +$1 billion price-tag. Half of those, he added, were in the hands of juniors which have little hope of financing them in the current environment.
“Macroeconomically that’s going to mean eventually demand will meet supply,” Mr Koth said. “That’s not going to happen tomorrow, and I’d argue you’re talking multiple years rather than multiple months. So, I don’t see any swift recovery.”
Denham plans to back this latest group with a similar amount as with Pembroke; up to $200 million.
Mr Koth said that of the more than 500 mining projects that Denham had looked at in recent years, only “a handful” made any sense.
“Industry-wide I think there’s at least a 10% opex and 20% capex reduction potential in Australia,” he said.
Read: Denham Capital to launch $200m mining venture (The Australian)
