PRIVATE EQUITY'S USE OF ROYALTIES AS A FINANCING TOOL

• Jurisdiction: Derecho Internacional

International Mining and Oil & Gas Law, Development, and Investment (Apr 2019)
CHAPTER 10A
PRIVATE EQUITY'S USE OF ROYALTIES AS A FINANCING TOOL
Catherine J. Boggs ¹
RCF Management L.L.C. (retired)
Denver, CO

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CATHERINE ("CASSIE") BOGGS is the recently retired Vice President and General Counsel of Resource Capital Funds (RCF), a private equity group based in Denver that invests only in the mining sector. Prior to joining RCF in January 2011, Cassie served as Senior Vice President-Corporate Development for Barrick Gold Corporation, the world's largest gold mining company. During her time at Barrick, she also served in Pakistan as President and CEO of Tethyan Copper Company Pakistan (Pvt) Limited, a joint venture of Barrick and Antofagasta plc, and acted as the interim President of Barrick's African Business Unit, and as the acting General Counsel and Company Secretary of African Barrick Gold plc, a subsidiary of Barrick listed on the London Stock Exchange. Cassie was appointed to Hecla Mining Company's Board of Directors in January 2017. Cassie graduated from the University of Denver with a BA in Economics, a MA in Resource Economics from Michigan State University, and a J.D. in Law from the University of Denver. Prior to joining Barrick, she was an International Partner with the law firm of Baker & McKenzie, serving as the head of its Global Mining Practice and working in the Chicago, San Francisco, Almaty, Kazakhstan, and Jakarta, Indonesia offices of the firm. Prior to joining Baker & McKenzie, she was Of Counsel at Stoel Rives in Portland, Oregon, and a partner in the Denver law firm of Sherman & Howard. Cassie has served as President and Trustee of the Rocky Mountain Mineral Law Foundation (2012-2013) and previously served on its Board of Directors. She was recently named by UK Women in Mining as one of the "100 Global Inspirational Women in Mining."

The advent of alternative financing products offer by private equity funds and others has spurred development of any number of mining projects that historically may not have been able to raise worldwide. Private equity investment into the mining sector commenced in the late 1990s as a specific asset class,² and reflects a perfect intersection of institutional investor demand for higher return potential and mining are a good fit because private equity financing provides for investment stability, potential for on-going financial support, flexibility in creating investment structures, industry experience to provide input into strategy and execution, and committed funds. The use of royalty financing represents one tool in the box of available financing structures that private equity firms use to invest in mining projects.

I. Private Equity

Private equity is an alternative form of investment that typically involves capital that is not publicly traded,³ and is a pool comprised of primarily institutional investors and high net worth accredited investors. Institutional investors often include university endowments, charitable foundations, public pension funds, sovereign wealth funds, funds of funds, and family offices. Institutional investors have been diversifying their investment portfolios to incorporate a variety of alternative assets, including specialized private equity funds that invest in the mining sector. Albeit, this investment represents only a small fraction of the total private equity capital under management, with only about US$20 billion being

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focused on mining, out of the approximately US$2.5 trillion of private equity assets currently under management. Investors choose to invest in private equity funds based on the fund's mandate, or how it expects to generate a return, such as early stage companies (e.g. venture capital for exploration, technology, medical device), growth capital (mature companies seeking to expand, restructure, acquire business or enter new markets); mezzanine financing (combinations of subordinated debt/equity financings that limit dilution if paid back on time); distressed (loan-to-own or turnaround with profit coming from a valuation uptick ticked to the changed.) In addition to a fund's mandate, private equity firms commonly have an industry or sector...