THE EMERGING MARKETS GOLD FUND LIMITED EQUITY FINANCING FOR MINING PROJECTS IN EMERGING MARKETS

• Jurisdiction: United States

International Resources Law II: A Blueprint for Mineral Development
(Feb 1995)
CHAPTER 8B
THE EMERGING MARKETS GOLD FUND LIMITED EQUITY FINANCING FOR MINING PROJECTS IN EMERGING MARKETS
Richard F. Mauro
Castle Group, Inc.
Denver, Colorado

I. INTRODUCTION

The Emerging Markets Gold Fund Limited ("the Fund") has been formed to acquire direct equity and equity-related investments in gold projects in Emerging Markets (developing countries as designated by the World Bank). The Fund has a target capitalization of $100-$150 million and has been closed initially with committed capital of $75 million. The N M Rothschild Group ("Rothschild"), the International Finance Corporation ("IFC") and Pegasus Gold Inc. ("Pegasus") have committed to subscribe collectively up to $60 million of the Fund's capitalization. The Fund will be analyzed in this paper as an exemplar of (1) the type of equity investment possible in international mining transactions, and (2) the investment parameters of such equity investment.

II. KEY FEATURES OF THE FUND

A. The Lead Investors. Rothschild, IFC and Pegasus Gold Inc. have considerable and complementary experience in the gold industry and Emerging Markets. Their key experience includes:

1. Rothschild is a long-established private global merchant banking group and is a world leader in the bullion markets and in Emerging Markets mining finance.

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It has financed, advised or invested in over 80 gold and other mining projects worldwide and acts as advisor and bullion broker to many major central banks. Rothschild has over $25 billion of funds under management.

2. IFC is a private sector affiliate of the World Bank. It has an AAA rating and total assets of $8 billion. Since its inception, IFC has invested in 63 mining projects in 29 countries with an overall exposure of $500 million. It is active in over 100 Emerging Markets and has sponsored or invested in over 25 Emerging Markets funds.

3. Pegasus Gold is a major U.S.-based gold producer with a market capitalization of approximately $700 million. Pegasus Gold is a pioneer of modern heapleach precious metals mining and is highly regarded in the industry for its technical expertise. Pegasus has reserves in excess of 5 million ounces, produced 470,000 ounces of gold in 1994, and anticipates producing 500,000 ounces in 1994.

B. The Manager. The Fund is managed by a special-purpose management company, EMGF Management Company Limited ("the Manager"), which is owned 70% by Rothschild and 30% by IFC. EMGF Management has delegated day-to-day technical, operational and administrative management of Fund investments to Castle Group, a U.S.-based investment management company with significant experience in the investment and management of venture capital funds in the precious metal mining business. Castle Group...