Elliott’s Hyperion Launch Is Latest Example of Alternatives and Private Equity Interest in Mining

The lean-in to mining may seem unwise at first glance. Prolonged softness in commodity prices has hurt traditional miners like Rio Tinto and BHP, while continued macroeconomic uncertainty hasn’t helped fears that there’s more downside to come.

Even so, Hyperion is just one of many in a growing field of alternative investors now interested in aggressive moves into mining and metals.

Most of that interest is driven by so-called critical materials, such as lithium, nickel, graphite, and cobalt, which are essential to electric vehicle and renewable energy applications. Accelerating momentum for energy transition projects is expected to stretch their relatively limited supply of raw materials, backstopping prices and providing an attractive opportunity to investors willing to make an early bet.

Government-led green energy incentives may further shock the market. The U.S.’ Inflation Reduction Act has already directed billions of dollars toward new domestic clean energy projects, with similar policy agendas in play across major markets.

Private Equity’s Mining Moment

Notable launches in the sector include a new €2 billion critical materials fund from InfraVia Capital Partners, a French infrastructure investor. With a similar mandate to Hyperion, the firm is specifically betting on the energy transition and EV battery inputs.

Speaking at a Natixis event in late January, InfraVia CEO Vincent Levita made his position clear: “We are at the start of a super cycle similar to the one we saw during the industrial revolution at the end of the 19th century.”

He added that “an estimated 50 to 60 billion euros in investment is needed to meet the demand for critical metals in the next ten years.”

Many other firms are queuing up to do just that.

Toronto-based Kinterra Capital debuted late last year with a $565 million fund targeting control stakes in energy transition materials projects or companies. Their thesis is much the same as InfraVia, and the firm’s founders may be even more bullish.

Co-managing partner Kamal Toor says that, even with the obvious opportunity size, many traditional miners are hesitant to commit meaningful dollars to new investments. Publicly traded companies, in particular, have “shied away in recent years,” he says.

“This is happening at a time in which we have probably the most significant secular, fundamental downstream demand for those minerals, and that’s really the thing that’s creating the compelling investment opportunity,” Toor said.

In October, Appian Capital Advisory closed on a $2 billion fund targeting new mining investments across both buyout and credit strategies. The London-based firm has historically focused on Latin American projects: “I think the medium-term trends in Latin America are really appealing, where you have a mining culture and a lot of high-grade critical minerals deposits, and it is effectively in very close proximity to the US and European markets, so you have a lot of things trending in the right direction,” says CEO Michael Scherb. “We're just seeing better opportunity there on a risk-reward basis relative to some other regions.”

Established natural resources funds are also pivoting toward energy transition-related investment themes. Resource Capital Funds (RCF), which has brought more than 25 mines into production, is gearing up for what it calls “immense upside.” Alongside lithium, nickel, and cobalt, its energy transition strategy also targets vanadium, a specialized metal used in long-duration energy storage projects that require more robust solutions than a typical lithium-ion battery.

Plenty of Pitfalls

Still, mining investments can present a unique set of challenges that investors accustomed to more traditional industries may shy away from. Assessing geopolitical instability and the prospect of unfavorable regulatory change are core parts of the diligence process. And, with deals happening across North America, Latin America, and sub-Saharan Africa, maintaining an up-to-date view of fast-changing conditions isn’t easy.

Situations can rapidly move against you. Just ask Carlyle’s natural resources team, who had to navigate a Gabon military coup in its exit this month of former Shell oil assets in the region. In a U-turn from the prior regime, the new government exercised a last-minute preemptive right to wrest an agreed-upon deal away from another buyer.

Carlyle says the terms of the deal were “materially the same” as its August agreement with France’s Maurel & Prom, though it’s a safe bet that government overthrow wasn’t exactly part of the team’s upside case.

Even if one manages to sidestep regulatory and governmental issues, there’s still the sticking point of ESG-related concerns. Compliance may not be cheap (or easy), particularly for projects without existing sustainable water and waste management operations.

ESG may also require a different set of skills than those found in the typical private equity investor’s toolkit. Appian’s Scherb says early community engagement is an important part of its ESG strategy: “[We] have to ensure all stakeholders feel that they have a part to play in the operation and a genuine voice.”

Picks and Shovels

For investors who prefer to avoid environmental and geopolitical risk altogether, early-stage technology bets can offer another avenue for mining exposure. Venture, in particular, has seen growing activity in the space.

Sector-specific fundraising in 2023 was up year-over-year, a notable signal in an otherwise difficult early-stage market. Highlights include…

• S2G Ventures invested in TechMet, a startup developing methods to produce lithium from geothermal resources

• Breakthrough Energy Ventures’ backed KoBold Metals, which uses machine learning to identify rare earth deposits

• Natural Capital and Unless led a recent round for Aether, a startup developing more sustainable techniques for lithium extraction

For those on the fence, InfraVia’s Levita believes it’s still early days. Referencing his own firm’s entrance to the sector, he says, “Two billion looks like a drop in the ocean when we consider the strategic stakes and opportunities offered by the sector.”