Almost 25 years ago, at Resource Capital Funds’ first annual general meeting, I was having dinner with some of our Limited Partners (LPs) and asked about the most interesting investments in their portfolios. This was in 2000, when dotcoms were booming, and biotechnology was making waves. I was sure they’d come up with some fascinating examples of cutting-edge industries.
Instead, they all looked at me and said, “James, you’re the most exotic thing in our portfolios!”
Mining is arguably the world’s oldest industry and at the core of almost all that is created by people. As we like to say, “if it’s not grown, it’s mined.” While investors today are more keenly aware of the mega trends affecting demand for critical metals and minerals like decarbonization, green energy, and electric vehicles, in the late ‘90s mining simply wasn’t on most investors’ radar. If they got involved in it at all, it was to invest in gold.
When Resource Capital Funds (RCF) started, we were the only private equity company to focus exclusively on metals and minerals. We pioneered the industry and I’m proud to say we are the only firm with 25 years of experience and over 175 exits. While there are much larger, public organizations and much larger mining deals, RCF has arguably been involved in more mining and mining-related, technology and infrastructure deals across the globe than any other entity.
That kind of broad and deep global experience teaches a person a lot.
Looking back there are qualities that I have developed that have led both to RCF’s success and my own personal growth as a leader. We weren’t just a new company; we were a new kind of company, and alongside my co-founder Hank Tuten, we were a new kind of entrepreneur. In many cases, we had to learn on the fly, improvise as we responded to challenges, and innovate. Our actions, then and now, are based on our values: Passion. Discipline. Integrity. Respect and Teamwork. We have found that when your values are sound, your decisions usually are as well.
Here are some of the other lessons I’ve learned along the way, which may resonate with entrepreneurs and leaders of all types of diverse backgrounds and experiences.
1. Embrace a Sense of Adventure
We got our start in 1998, when Hank Tuten (now retired) and I co-founded RCF. In the late 1990s, mining was at the bottom of the cycle. Mineral and metal prices had fallen drastically. Copper was selling at $0.65/lb., meaning that it was costing some copper companies money just to produce it. There was some looming negativity around the industry, but we also saw great optimism and opportunities for the future. The Iron Curtain had fallen opening-up new geography. Venezuela was booming partly due to oil, but also fueled by new reserves of aluminum and bauxite. And China was just beginning to emerge as a major market.
There was a palpable sense of excitement about what we were doing. Admittedly, we were a bit naïve as new entrepreneurs, and in retrospect, I think that was an advantage, and perhaps even a prerequisite. We didn’t really have a detailed business plan that said “We’re going to do A and B to achieve Y and Z.” The business environment was changing too rapidly, there were too many unknowns, and there was so much we were learning. Hank and I did have valuable investment banking experience from our time at Rothschild & Sons in Australia and North America – and more specifically, insight about what was happening in the mining investment environment.
We’d overseen many of the Rothschild’s mining assets and had often discussed how different approaches to deploying capital could open up opportunities in ways that regulated banks just couldn’t. One day in 1997, while travelling with Hank in Vancouver we sketched out the idea and Hank tapped me on the shoulder and said, “All these things we’ve been talking about over the years: Let’s get on and do it.” With that the adventure started.
RCF began as an opportunity to execute on something that was just a thought process prior to that point. We were having fun and doing something new and taking some considered risk as part of the adventure. That’s not to say we didn’t make mistakes. While we had experience, we were new to building a company from the ground-up. In our first year, I remember an early investor asked me what was happening with our annual general meeting. I made up some excuse and rushed off to call our CFO Sherri Croasdale to ask, “Are we supposed to have an annual general meeting?” That’s how wet behind the ears we were.
I think that sense of adventure, of being willing to try new things, and learn along the way worked in our favor. If we’d been too serious, too focused on our long-term goal, or too rigid in our thinking we probably would have played it much safer and missed out on some great opportunities.
2. Mentors: A Key Asset, Wherever You Find Them
I have been lucky enough to have mentors who could complement my own abilities – and serve as valued sounding boards when brainstorming ideas.
A mentor doesn’t necessarily have to be someone senior to you; they could be a partner, a friend, or anyone with the right mix of wisdom and practical know-how to balance your own experience. It was an exceptional privilege to be able to work with my co-founder, partner, and yes, key mentor in Hank.
Hank had grown Rothschilds in Australia from a small operation to a substantial business and came to oversee a large organization. There are deep and extensive learnings that someone with that sort of experience picks up along the way, and I was lucky to have him as a co-founder and tap into those insights. I don’t think I realized at the time that my partner was also operating as my mentor. It was a high trust environment, and I learnt over time the critical need to have smart and collaborative people around you.
I was also fortunate to find mentors among our LPs. In any business, particularly as you’re starting out, it’s vital to listen to your customers. In the case of private equity, it’s arguably even more important, especially in the early stages. This is because LPs have significant financial expertise and knowledge – along with the motivation to help you succeed. It’s a symbiotic relationship similar to what exists between venture capital and the tech startups they invest in and nurture. We’ve built solid relationships with our LP-base and that comes from active listening, learning, and successful investing. I learnt that strong and trusting relationships are key to business success.
Finding mentors and being open and humble enough to listen to their insights, is a key enabler to success.
3. Trust & Talent: The Transition Away from a Founder-Led Business
As RCF grew, one of the hardest things I faced was realizing that I couldn’t oversee every decision anymore. As a founder, I was involved in every decision at the beginning – and it’s exciting and fun and I wanted that control. As we grew bigger, I simply couldn’t take an active role in every operational choice or every investment deal. I had to shift from being the guy who was out fundraising, and knew every deal inside and out, to being someone who built a solid, talented team I could trust to care for RCF with the same values Hank and I shared.
That transition can be difficult. I had to learn to let go. But letting go is only possible when you surround yourself with talented colleagues who bring the same passion and discipline you have to the table.
This can be complicated to achieve in the early years. Bringing in new blood to a small, tight-knit group that’s been there from the start is no small feat. We had to make a conscious adjustment to company culture, find the right cultural fits, and make an ongoing investment in our most critical assets, people. We have hired world-class investment, fundraising, technical and operational professionals with the requisite skill sets. In addition, we needed to find the right cultural fit that established the trust required to grow as an organization while allowing me to grow as a leader.
The nice thing about an organization with ranges of tenure is that you have processes for retaining and institutionalizing historical knowledge and can project it forward with greater confidence with new leaders as well.
Once you develop the ability to attract and retain people with the right skills, experiences and values, the best thing a leader can do is get out of their way. Support them when necessary but trust their judgment and give them the freedom to make decisions.
4. Emotional Intelligence is Mandatory
So how do you find the right talent? I’ve learned over time that most people, with the right intellectual horsepower and curiosity, can become strongly proficient at analysis, due diligence, or anything else related to finance and the hyper-technical aspects of mining. There are experts in any field and we have a strong team at RCF, but, growth and success in our sector requires a combination of technical & financial expertise, and emotional intelligence. The stark reality is business is never just about numbers. Empathy, engagement, and active listening are key traits of strong leaders and great investors. Fundamentally, people want to work with and for people they respect. If they also like you along the way, then that is a great plus.
As a mining and mining infrastructure and technology investment institution, we have to be experts in a diverse set of skills including everything from financial analysis to metallurgy, but we are also in the human resources business. We’re conducting due diligence on people in potential and existing investments, essentially assessing and evaluating boards and management constantly across our portfolio of approximately 70 companies in active change processes at any one time. We are in discussions with boards and working and collaborating with management teams to help them successfully execute on agreed upon strategies to ensure optimal returns for our LP’s/investors. We need to ensure we can maximize the ability to influence, and control, the outcomes, – empathy and active listening is vital to executing an investment successfully.
With the same thoughtful consideration that we have to ensure the technical and financial aspects of an investment are understood and optimized, we need to ensure we optimize the “people aspects” of our investments – the individuals managing the operations we invest in. It’s inevitable, for example, that from time to time, and with the collaboration and understanding of a board or management team, enhancements will need to be made to the people aspects of an investment. The key here is trust and respect – two of our core values. Because at the end of the day, it’s a small industry—too small not to treat people respectfully and with professionalism. A person who didn’t work out in one deal might end up being a tremendous asset in another.
How we treat people matters.
5. Keeping Calm Helps You Carry On
No company makes it to its silver anniversary (25 years in business) without facing some challenges, but each challenge we’ve faced has better prepared us for the next one. I’ve learnt to remain calm and not react prematurely to unexpected situations. It’s vital for the ultimate success of an investment, (and my own sanity).
We saw the dotcom bubble burst, witnessed 9/11, faced the financial crisis of 2007/2008, multiple cycles in the commodity sector and of course most recently, COVID. Colleagues, customers, and partners can all become uncomfortable by uncertainty which can affect long-term decision-making.
I’ve learned along the way that it’s critical to keep a steady hand at the helm, cut through some of the noise and fears, and actually help teams get decisions made and work through challenges during what can turn out to be very difficult times.
In the early days of COVID, we had to keep reminding ourselves that we’ve all seen hysteria in the media before and it may not be as ugly as it seems. We’re fortunate to be in a business in which two or three months doesn’t really move the dial a great deal on our investment, so we just stay focused, keep to our principles and values, but also ensured we adjust once we had a better understanding of any situation on an investment, or overall investment theses. Now, that doesn’t mean we don’t plan. Certainly, during COVID, there were a couple of board meetings with portfolio companies where we had to assume the worst. Supply chains and logistics for human resource availability were severely impacted, creating delays on project construction, and other aspects of investment stages. There are also some commodities, like gold, where you know you’ll always be able to sell it on an exchange, pandemic or not. But if you produce a pound of tantalum and you don’t have a customer, it doesn’t go anywhere, and you’re left with zero revenue. So, we proactively developed a variety of contingency plans, especially for those businesses with substantial market risk. But in effect, we were applying the lessons we’d learned from previous crises: we’d seen difficult markets before, we’d faced uncertainty, and we understood the imperative to stay focused and remain calm.
6. Patience: More than a Virtue, It’s a Requirement
Patience is one of the most important virtues needed for future entrepreneurs, those looking to enter private equity, and for anyone in the mining and mining technology and infrastructure industry.
- For long-term investors: If you’re coming from a public company, you’re often running your business on a quarterly basis. But private equity is a five to ten-year fund cycle which affects your approach to investment timing, operations, the skillsets you need, the decisions you make, even the demeanor of the people you hire. It’s the long game in which results may take some time to become realized. Patience is a mindset for success.
- For fundraisers: Capital flows much more slowly in private equity compared to other capital markets. Millions, even billions flow in and out of the stock market in seconds. A public equity raise might be a roadshow for a week or two. But a private equity fundraise is more like a marathon that can last for 6, 12, even 18 months. There’s a focused universe of LPs, and trust matters. Relationships matter. And those things take time to build.
- For miners: The mining life cycle can be long and complex from exploration to operations, to mine closure and reclamation. Mining assets can take years to reach their full potential. Mining requires patience. Luckily, at RCF, we invest across the mining lifecycle and have the ability to deploy capital where it makes sense to create value for investors.
- For business leaders: It’s one thing to develop a formula for success or have one great deal, and another to scale it up to take advantage of all the opportunities in your field. You have to set aside valuable time to map out and manage the growth process. You have to evolve your culture along the way and learn how build back from setbacks. Those things don’t happen in one or two quarters.
It takes time to move the dial in our business, and vitally, persistence, which I would define as a combination of patience, drive, and resilience. Deferred gratification is the name of the game, and not everyone is comfortable with that. But for us, being able to take the long view has been instrumental in helping us succeed.
These lessons and traits are things I have learned along the way and will carry with me and the firm for the next 25 years. I didn’t start out knowing them, and certainly I’ve made mistakes. But reflection, being humble, and trusting your team creates fortitude, experience, and resilience which separates the merely good investors from the great ones.
This material is provided for educational purposes only and should not be construed as research. The information presented is not a complete analysis of the commodities landscape.
The opinions expressed may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by Resource Capital Funds and/or its affiliates (together, “RCF”) to be reliable. No representation is made that this information is accurate or complete. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.
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