Blocks of unrefined gold nuggets.Alessia Pierdomenico/Bloomberg
A Toronto-based private equity firm is finding a receptive audience among institutions looking for a way to bet on a long-term recovery in metal prices.
Waterton Global Resource Management said on Tuesday that it has raised $725-million (U.S.) to bankroll a fund that will invest in gold and copper properties in politically stable jurisdictions.
The Waterton Parallel Fund intends to follow in the footsteps of the company's two-year-old Precious Metals Fund II, according to Isser Elishis, Waterton Global's managing partner and chief investment officer. The earlier fund raised more than $1-billion in 2014, according to a company news release.
The new fund is "basically an extension of our current strategy," Mr. Elishis said. "It's mostly our existing investors. We're not launching a new strategy or a new view or a new philosophy."
Mr. Elishis's pitch for both funds has been simple but compelling. He says metal prices will be substantially higher down the road, so now is the time to buy mining properties, especially ones where his team can add value over the next three to seven years by optimizing operations, centralizing functions or navigating the permitting process.
That contrarian proposition has proven to be attractive for large institutions that have the freedom to take the long view. Mr. Elishis won't reveal individual names, but says nearly all his investors are university endowments, sovereign wealth funds and foundations.
Investors must agree to lock up their money for 12 years, an unusually long commitment for a private equity investment. Mr. Elishis says the guarantee of patient money gives his team a chance to add value while waiting for what he describes as an inevitable rebound in metal prices.
"I believe if you look five years down the road, you will see metal prices materially higher than here," he said.
Mr. Elishis says Waterton Global now controls half a dozen producing mines, as well as more than 70 mining properties, "25 plus" of which are in the late stages of permitting. He aims to do 10 to 15 transactions a year.
Last year, for instance, the company's Precious Metals Fund II purchased a Nevada mine and 70 per cent of a Nevada property from Barrick Gold Corp. for $110-million. It also paid Midway Gold Corp. $25-million for its 30-per-cent stake in the Barrick property.
"Copper, gold and silver aren't going out of style," Mr. Elishis said in a recent interview with The Globe and Mail. "It's not like technology. The biggest risks in the mining space are time and leverage."
He blunts those risks by avoiding leverage and by insisting on a fund life that is long enough to outlast market fluctuations.
Remarkably for a man who controls scores of precious metals mines, he's not a raging bull about the short-term outlook for gold, especially after the big gains of recent months.
"You've seen this remarkable run-up on global macro factors, like Brexit or the Fed. We're gratified for what it means to our asset values, but I think it's a bit crazy, to be honest."
He said he would not be surprised by "a pretty good pullback" before metal prices resume their upward course.
For now, the big rise in gold prices and gold stocks means that Waterton is likely to focus more on base-metal assets, rather than precious metals, he said.
Ian McGugan