Resource Capital Funds (RCF) is the oldest private equity company focused solely on mining. As a Founder and Managing Partner, I’m certainly a bit biased, but I don’t think I’m going out on a limb to say that after 25 years we’re still at the forefront. When a mining company is looking for capital – or an LP wants to get involved in metals and mining – they think of RCF, and for good reason.
Over the past two decades we’ve been involved in a remarkable number of mining deals: 25+ mines built. 30+ commodities invested in. 50+ countries. 220+ investments. 150+ portfolio realizations. This breadth and depth give us a unique perspective on mining investments and the global markets they serve. RCF has invested through the dot-com bubble (and bust), the China boom in the early 2000s, the 2008 financial crisis and the energy transition we are seeing today, that means we have institutionalized insights and learnings gained from deep experience.
Over the years, we’ve cultivated a culture that places a strong emphasis on commercial creativity, technical expertise, and strong partnerships. But our ultimate success is built on the foundation of an outstanding investment organization, led by individual investment managers who need to be, quite frankly, exceptional.
It’s not easy to pin down what makes a great investor. They are both born and made. Born in the sense that you really do “know it when you see it”. There are certain intangible qualities that great investors possess. Natural leadership. Natural instincts. Confidence and agility in decision making. But great investors are also most certainly made: They must navigate market ups and downs, good deals and bad, continuously learn, and improve. Investment wisdom comes from investment experience.
There are three characteristics, both innate and acquired, that in my experience define the difference between the merely good investors and the great ones.
1. Commercial Creativity
A solid technical and financial background is crucial, but it’s not the whole story. The best investors are deeply creative thinkers. While investment excellence requires a disciplined process, exceptional investors see patterns and opportunities where others may not. And, perhaps most importantly, they have a unique ability to combine their knowledge with commercial savvy and real-world experience, enabling them to navigate complex situations, take on sensible risk, and make sound decisions. Great investors are outcome focused but can live with uncertainty. They can piece together fragments of market information to form a coherent picture and vision, even when the future isn’t completely clear, or others don’t see it.
So, of course, they possess vision, in the sense that they can formulate a cohesive – or perhaps brilliant – investment thesis and exit strategy before a deal is ever consummated. However, their creativity extends far beyond vision. Vision without flawless execution is pointless. Creativity and problem-solving in deal execution is critical to success as circumstances can and will change in unexpected ways. Great investors always find a way. In large part, it’s because they’re keenly aware of the initial investment risk and subsequent decisions needed to realize the return, and they’re always trying to anticipate alternate responses to possible what/if scenarios.
2. Mental Agility
Great investors are adaptable, capable of pivoting when required and generating fresh ideas in response to changing circumstances. Intelligent risk-taking is an essential aspect of our business because there’s never a simple, A to B path to success. When an unanticipated scenario presents itself, they are ready to change course in pursuit of an outcome – and they have the fortitude to take action. It’s not just the first risk of making the investment, it is all the subsequent critical decisions that make the return.
As Sir Richard Branson has noted, “I have learned more from my mistakes than from my successes”. Sooner or later, one of those risks will lead to an unforeseen outcome. When I was starting my career, a banking mentor at Rothschild told me, “You’re not a great investor until you’ve had a loss”. Mental agility allows investors to learn from a loss or a bad deal and bounce back to do better. And the great ones never let short-term failure or setbacks obscure the long-term opportunities.
I have learned more from my mistakes than from my successes.– Sir Richard Branson
3. Emotional Intelligence
Success in business is as much about relationships as any other factor. Deal makers need to be able to galvanize support for their ideas both internally and externally – especially when there’s a need to accelerate processes to achieve an outcome. Investment managers have to be able to relate to and engage with many different constituents, from Limited Partners and CEOs, to boards, technical experts, and internal investment committee members.
Emotional intelligence is a natural gift of great investors. The trait enables them to manage and navigate the diverse needs of multiple parties, while ensuring investment objectives towards an exit are met. They also need to evaluate senior executives and management teams and build rapport with portfolio companies to properly drive execution.
That’s why great investors are also great listeners. They can evaluate and appreciate alternative perspectives in order to navigate a critical path to an outcome. They treat people with respect, and recognize the importance of maintaining goodwill, even under difficult circumstances.
What About Great Mining Investors?
Mining is a global industry, but mining assets are inherently local. You can move a car factory to another country, but a gold mine isn’t going anywhere. Success comes from thinking, acting, and knowing what to do at the local, regional, and global levels. Great mining investors have to get to know people on the ground in order to identify and create the local partnerships that are critical to the success of an asset.
They also have to be connected to the relevant experts and global syndicates of co-investors, consultants, lenders, advisors, etc., who are best positioned to optimize their investment. Of course, having access to RCF’s highly developed global network and local partnerships and relationships gives our investors a leg up in this regard.
Breadth and depth of experience – hard-won experience – is also essential. Mining is not a monolithic industry and each commodity has its own distinct set of market dynamics, technical challenges, and investment risks. Gold is different from lithium; tantalum is different from zinc. Successful mining investors need to understand the underlying drivers of demand for particular commodities and consider the long-term ramifications of the macro environment.
They need exposure to multiple market cycles in order to recognize relevant prior trends, and act quickly with confidence to allocate capital appropriately. De-risking a project and creating value across all phases of mining, from exploration and feasibility to construction and operation is critical. Mining is highly technical. Geology, metallurgy, engineering, ESG impacts. These are dense scientific fields. Great mining investors have strong knowledge of each, but also know how to work with talented experts to assess opportunities and risks. At RCF, we pride ourselves on our experienced in-house platform of specialists across geology, mining, metallurgy, construction, operation, ESG, valuation and data analytics that we can tap into.
Experience with different portfolio companies, boards, exit strategies, and deals is also important, but there’s a limit to how much any single person can be a part of. It helps to be surrounded by colleagues who are willing to share their insights without fear or favor. We strive to foster that kind of environment at RCF, because it helps us attract and develop great investment managers.
Different observers have distinct perspectives on what makes a great investor so exceptional, but one thing remains unassailably true: Great investors must get results. Are they born or made? The answer is likely “Yes” to both – but it’s ultimately a moot point. Looking backwards won’t help you find and build a team of extraordinary individuals who can consistently achieve superior investment returns and positive outcomes for diverse stakeholders.
But based on my observations and experiences in mining private equity, the investors who possess commercial creativity, emotional intelligence, and mental agility are the ones I trust to achieve greatness.
This article was first published by James on LinkedIn on September 18, 2023.
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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