Private capital is filling the void left by more traditional sources of financing in the mining sector, looking for exposure to energy transition, defence and AI through funding the underlying essential metals, writes Ariel Tepperman, Head of Metals and Mining at Gneiss Energy.
The energy transition and the long-term trend towards electrification means that significant new funding is required in the metals and mining space – to deliver the materials and rare minerals crucial to EVs, batteries, renewables and also increasingly to defence and AI.
The International Renewable Energy Agency states that over $35 trillion of capital investment must be deployed by 2030 to support a successful global energy transition, whilst Bloomberg NEF calculates that around $300 billion is needed to fund near-term copper and gold projects alone.
With constrained ex-China supply and continually rising demand for copper, lithium, cobalt and a range of other critical minerals, significant long-term returns can be secured – for those that can navigate what can, to outsiders, be a complex arena.
Traditional public markets capital in the form of generalist funds are very procyclical and generally do not like the volatility in this space. This, coupled with the long-term decline in specialist mining-focussed public equities funds, has required new sources of capital to fund the shortfall.
This has created an opportunity for a group of patient investors with an appropriate level of risk-tolerance to fund the significant capital required. Private capital has stepped up to fill this gap.
As a result, there has been a significant uptick in interest from high net worth / family offices and sovereign wealth funds playing in this space, as well as a growth in mining specialist and thematic private equity funds. There has also been some significant but more limited investments by tech founders (generally through AI deployment) and crypto kings (into gold).
The challenge for traditional private equity has always been the market cycle, long timelines and operational complexity of the mining sector.
Mining-focussed private equity can be more patient, with evergreen or longer-term (+10yr) funds. Family offices and high net worths can also take a long-term view and often like to invest in exposure to mega-trends. Sovereign Wealth Funds will often have their own strategic objectives for investing which aren’t solely focussed on financial returns.
Some of these groups know the space well, but increasingly we are seeing non-sector specialists keen to join the macro-trend, capital-rich entrants seeking to start a fund and new classes of investor taking long-term positions in the vital metals and mining value chain.
For the outsider, accessing these funds can be difficult to navigate, and depends very much on relationships and track record.
It is a fast-moving, fast-evolving sector, but the long-term trend is very clear and presents significant opportunities to bring investors and projects together in what are very often unique, bespoke deals.
