After pre-marketing their latest venture, Denham Capital, which is one of the largest resource-focused private equity firms, announced the formation of Auctus Minerals, to focus on acquiring underperforming operations across Australia and applying operating efficiencies to them in order to turn a profit.
The venture is being funded with US $130 million (initially) from Denham and will be led by Stephen Murdoch, a Perth-based metallurgical engineer who was previously the CEO of Gindalbie Metals. Gindalbie is the 47.84% joint venture partner with AnSteel (52.16%) on the AUS $3.5 billion Karara iron ore project in Western Australia.
Mr. Murdoch also helped turn around a AUS $430 million acquisition and integration play by Cape Plc, according to the release.
Essentially, Denham is betting US $130 million that Murdoch will be able to turn around a few more mining projects before his career is over.
This is Denham's bread-and-butter. They like to back technically savvy management groups early, allowing them to execute on their business plans (in this case turning around inefficient mines) and then eventually selling the companies to maximize Denham's invested capital, usually within a decade.
“Stephen and his team have a long and successful track record of implementing savings to operating and development costs in both base metals as well as bulk minerals,” said Bert Koth, Managing Director at Denham Capital and head of the Australasian region based in Perth. “During the mining boom, Australia has become a high cost environment with productivity decline. Thus, the key to value creation in Australian mining projects today is the ability to achieve cash flow fast and reduce cost rigorously. Partnering with Stephen and his team will allow us to realize that opportunity.”
Koth claims Murdoch and his group have looked at over 1,000 metals projects and are close to narrowing in on one (or more) soon.
Mr. Murdoch will be joined by two former colleagues including Paul Sims, who took over for him at Gindalbie after Mr. Murdoch left, and Terry O'Connor a seasoned mining engineer who worked with Murdoch at Cape.
“There’s been a generation of professionals and executives in the Australian mining industry who haven’t gone through cyclical lows. They’ve had a sustained period of massive capital injections, particularly in Western Australia where there’s been an extended period of the party going on. We understand what it takes to run a tough executive team,” Mr. Murdoch told The Australian's Paul Garvey.
The company will likely stay private for a number of years, allowing it to grow without being influenced by the volatility of the markets or the scrutiny of the investing public.
Denham is a Boston-based private equity fund that was founded in 2004 to invest in the domestic energy space. Since then it has expanded both its capital pool and its investment criteria and now has $7.9 billion in invested and committed capital across 7 fund vehicles. They have offices in Perth, London, Boston, Houston and Sao Paulo.
They incubated C&C Energy privately and brought it public in a 2010 IPO, raising $100 million in the process (they kept roughly 1/3rd of the company post-IPO). They subsequently sold C&C to Pacific Rubiales in 2012 for $500 million and Platino Energy (PZE:TSXV) was created as a spinout and remains a portfolio company of Denham.
Below is a short video showing the Karara operation which Murdoch was instrumental in developing: