The departure of a key executive from Barrick Gold Corp. highlights the large amount of capital rushing into a red-hot corner of the mining world.
Shaun Usmar, the highly regarded chief financial officer at Barrick, is leaving to head up a new venture backed by the U.S. hedge fund Elliott Management Corp. that will focus "on royalty, streaming and other forms of investments in the mining industry," according to a Barrick press release issued after markets closed on Wednesday.
Elliott Management has earned a reputation for smart, aggressive investing and is fresh from a resounding victory in its 15-year battle over Argentine debt. The involvement of the high-profile hedge fund demonstrates the lush potential payoffs that a growing number of investors now see in providing cash-strapped miners with access to capital.
"Streaming" deals, in particular, have boomed in recent years. Under these agreements, companies provide miners with cash today in exchange for the right to buy a stream of metal tomorrow at a low, fixed cost.
Silver Wheaton Corp. of Vancouver pioneered the strategy more than a decade ago. Franco-Nevada Corp. and Royal Gold Inc. adopted the model and they have been joined by many others.
The newcomers range from upstarts such as Osisko Gold Royalties Ltd. and Sandstorm Gold Ltd. to private equity firms such as Orion Resource Partners and Blackstone Group. They have all demonstrated a willingness to provide miners with money at a time when banks and equity investors have turned skittish.
Elliott Management, however, brings new financial muscle to the streaming sector. It has $27-billion (U.S.) in assets under management and is known for its willingness to make bold and controversial investments.
The New York fund declined to provide specifics about the new venture other than to say it will be set up as a separate company, based in Toronto, and will not be a subsidiary of Elliott. However, industry observers believe the U.S. giant's new interest in the sector is likely to herald a major investment on its part.
"For a fund of Elliott's size, it wouldn't make much sense to go through all the hassles involved with doing this unless they intend to deploy a significant amount of cash," one executive familiar with the sector said.
He thinks Elliott will invest hundreds of millions of dollars in the new firm at a minimum and a "low, single-digit percentage" of its assets at a maximum. Given that math, Elliott's total financial backing for the venture could easily soar well above $1-billion.
A handful of recent streaming transactions have topped $1-billion each, and many are in the $500-million range, so an investment even of that magnitude is not likely to overwhelm demand.
Elliott Management may also be looking at other ways to shake up the mining sector that go beyond just streaming deals. Founded in 1977 by Paul Singer, the fund is best known for its activist encounters, when it has taken an equity stake in companies and pushed for change.
The fund was also a major force in the epic battle over bonds that Argentina defaulted on in 2001. After years of legal warfare, Elliott and a handful of other bond holders struck a deal with the new Argentine government earlier this month. If approved by the country's senate, the agreement will give the funds a massive return on the amount they have invested in the country's debt.
However, not all of Elliott Management strategies are so dramatic or so confrontational. It has, for instance, been an investor in many technology companies, including the Sigfox cellular network in Europe that aims to connect the so-called Internet of Things – low-energy devices, such as security cameras, electricity meters and washing machines.
Mr. Usmar was not available for comment, but his background suggests that the new mining venture could range widely in search of opportunities. Before joining gold miner Barrick in 2014, he was one of the founding members of the leadership team at base metals miner Xstrata PLC.
He will remain at Barrick until the annual general meeting on April 26.
Editor's note: An earlier version of this story incorrectly reported that Elliott Management had helped to persuade Alcoa Inc to split in two. In fact, Elliott Management did not precipitate the split and did not inform Alcoa of its ownership stake until shortly after the separation was announced.