The final session on the first day of the 2018 AMPLA National Conference in Perth included a pertinent paper on class actions, followed by a high-powered panel discussion on private equity (PE) investment in the resources sector. Peter Nicholson from Resource Capital Funds and Bert Koth from Denham Capital talked about the drivers and perspectives from the PE funds in making investments, and Marshall Baillieu from Rothschild shared the deal-makers’ perspective. The session was illuminating and also very entertaining, in particular covering the types of deals where PE can add value (and therefore win bids over mining houses), and noting that picking the right asset at the right price is only the start: managing the asset post-acquisition to meet the fund’s objectives is critical.

The speakers' commentaries were consistent with what we have seen in the past few years, with an increase in PE activity and sophistication in both acquisitions and bids for assets, including in the Queensland coal sector. In particular, challenges presented by and for PE bidders (as against 'trade' buyers) have included:

• No guarantor: PE bidders often include foreign fund investors and potentially a brand new ownership structure with no other assets. This presents particular challenges in the resource industry – while the vendor may accept no purchaser guarantor (in common with other PE buyers), guarantees are often required to be replaced for joint venturers, port and rail. and other significant contracts (and potentially, the government). This increases transaction risk and requires careful management.
• Debt: many 'trade' buyers also use debt on acquisitions, but this is often corporate debt, which doesn't necessarily require asset level security. PE resources buyers generally require acquisition finance, and accordingly, registered security over the mining tenements and other assets. This can be difficult to navigate with mines that have not been previously secured, with joint venturers and potentially royalty holders and other interested parties needing to be dealt with. 
• Environmental bonds: all Queensland miners presently have to provide financial assurance to the Queensland government for their rehabilitation obligations, in the form of a bank guarantee. This is due to changes with financial provisions reforms (and the likely passing of the Mineral and Energy Resources (Financial Provisioning) Bill 2018 (Qld) later this year) where miners may instead qualify to pay a levy into the scheme fund, depending on the risk category of the mining lease. Depending on the nature of the mine and PE owner, PE owners may be categorised at a higher risk, particularly if they are a single mine owner and have significant debt in the structure. This may increase the relative cost for a PE bidder over an established miner. See: Changes to Queensland's rehabilitation and financial security framework for the resources industry
• Partners: PE funds generally have a maximum investment period of 10-12 years, with a target to exit within 3-5 years of acquisition. Other stakeholders in mining assets (in particular, joint venture partners) need to keep this in mind when dealing with a PE investor, including in relation to their approach to capital investment.

The panel discussion reinforced the impression that PE investment is likely to grow in the resources sector, and that a nuanced approach is needed by vendors, purchasers and other stakeholders (and their advisers) to address the unique issues arising with this category of investor.