Home | Features | Oct/Nov 11 | A word from Carmel Daniele, founder & managing partner of CD Capital

A word from Carmel Daniele, founder & managing partner of CD Capital

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Carmel Daniele, founder and managing partner at CD Capital, started private equity natural resources fund CD Capital, says that she likes, “building things from scratch.” From her work at the fund—which has been investing in resource houses across the metals and minerals sectors since 2006—to being instrumental in the famed Franco-Nevada, Newmont and Normandy deal, it is certainly an accurate observation to make.

CD Capital was founded to address the commodity super-cycle taking shape five years ago, and has since achieved impressive capital gains for its clients through private pre-trade and pre-IPO entities. Previously dubbed “London’s commodities queen,” Daniele’s insights are often sought when it comes to pondering the markets, and as a board member of Women in Mining UK (WIM UK) she’s a highly experienced, integral part of the organisation.

NG: Let’s revert to topics you seem to be asked about often: gold and the super-cycle. It seems like the market is continually playing out in line with your predictions, and I wonder how CD Capital has acted in partnering with companies set to perform accordingly.

Carmel Daniele (“CD”): At the moment, I feel the real world is doing a lot better than the financial world. The commodity super-cycle is still very much intact—it’s probably stronger than it’s ever been. Many analysts have revised their commodity price forecasts upwards, and the macro demand for commodities is still very high with supply still tight making the supply/demand dynamics very strong. But we’re in a very interesting stage because while there’s still strong demand for commodities from the emerging countries, the financial and Western world is faced with the eurozone debt crisis and low U.S. consumer sentiment creating a strong demand for gold. The population explosion and plans for mass infrastructure spending around the world are creating a lot of demand for iron ore and coking coal and potash, for example, but in the financial world you also have a very strong demand for gold. Gold’s basically a psychological metal; it does very well when people aren’t feeling positive about the world. It’s a safe haven and people want to hold it as a currency when they can’t decide between the U.S. dollar, the yen or the euro. That being said, I think that the best way to play gold at the moment is through gold equities, because they haven’t been going up like the gold price and there’s a disconnect. I think you’ll find that some of the gold equities will catch up. One that we particularly like is Gran Colombia (GCM-CN)—A Colombian gold company with massive growth potential. It is due to increase production to 600,000 ounces gold per annum in the next few years. The interesting thing is that there’s no one producing more than 100,000 ounces of gold per annum in Colombia at the moment, so I think that it could potentially be a takeover target by one of the majors scrambling to get a foothold in Colombia plus it is led by a great management team with a strong track record in building world-class assets.

NG: Let’s look at CD Capital’s approach today. How might you define the ‘first look’ and ‘only look’ opportunities outlined as part of your focus, particularly given the firm’s role in providing financing for industry, from industry. It would be great to understand more about how the fund is instrumental in moving projects on.

CD: We’re considered the industry insiders; comprised of people who all come from the mining sector. That’s important because it gives us the inside track and we all bring complimentary technical skills which we use in analysing deals. We collaborate with mining entrepreneurs, which I’ve known for many years, and together we scout the world for resources prior to their certification, build them up into world-class assets, then sell them at a multiple to either the major corporates who are shrinking and need to continuously replace their reserves and resources, or to the emerging countries that desperately need the underlying resources to build their own growing empires. These mining entrepreneurs need us for more than just capital. We help them with exit strategies, in some cases putting in a management team together and with finding deal-flow that we can reverse into their company. London’s the mining finance centre of the world and we’re at the crossroads of Africa, Latin America and the FSU. With so much deal-flow coming through our door, we have a lot of intelligence on the whole sector, and these mining entrepreneurs—who have stakes in properties all over the world—value that greatly. That’s why they want us to be partners with them, essentially, and we’re also considered to be long-term, patient capital. We understand the sector and we aren’t going to exit or give away a property too early. We also facilitate mergers and acquisitions, should there be an opportunity, and we share the same philosophy in terms of identifying an asset at the pre-certification stage, getting it certified, then once it’s built out, creating some competitive tension so that we can exit the property or get in a strategic.

NG: You previously referenced both population explosion and mass infrastructure spending to come; two key drivers behind commodities pricing. How are CD Capital’s projects aligned with how each of these fronts propels the markets today? Are there any projects we ought to look at in particular?

CD: I was reading a study that there’s going to be US$41 trillion spent on infrastructure around the world by 2030, and when you analyse where the steel, iron ore and coking coal is going to come from, there’s just not enough coming onstream. We particularly like iron ore and coking coal; iron ore because it has high barriers to entry and the three majors control 75 per cent of the seaborne iron ore trade, and also the major consumer, China, is a price-taker and doesn’t have its own economic reserves. Coking coal is also vital for the steel industry, and with Australia slowly running out of high grade coking coal assets everybody’s looking for the next jurisdiction with coal. We like countries in Latin America in particular for this, more so than any other jurisdiction at the moment, but we are global and opportunistic. Latin America is still relatively under-explored and has lower geopolitical risk than Africa at this stage. We like Colombia—it’s really a geologist’s dream—as two thirds of the country is untapped in reserves and resources and has recently opened up to the world. We’re moving into other parts of Latin America as well, such as Uruguay. With the population explosion, people’s eating habits are changing and that’s why we like potash which is used in fertiliser. Potash has the same dynamics as iron ore; high barriers to entry and controlled by a few players such as Canada and Russia. We’ve identified some potash in Brazil, which imports 90 per cent of its potash needs and has a growing agricultural market. Its potash is imported from Canada and half of the associated cost goes on transport, but it has its own undeveloped natural resources of potash.

NG: Is that part of the current trip you are taking in the region?

CD: Yes, it was a site visit to Brazil to see where their potash resource is located. We found it to be strategically located near the soy farmers who need the potash and near all infrastructure such as panamax ships and ports. It appears to be a very large basin of a world-class standard.

NG: It must be exciting to be there and in the thick of it as development takes place.

CD: Yes, it really is. It’s much more exciting than when I was working in the sector in the 90s in the bear market; there were very low commodity prices and it wasn’t a very glamorous industry to work in. I’ve learned a lot, having worked in the bear market, about how to survive—how to insulate ourselves from commodity price fluctuations. That’s why I’ve developed this strategy. We invest in companies pre-certification of the asset at a fraction of the value of the resource, so to a large extent that allows us to be immune from commodity price drops: We invest at a fraction of the value, but we still get the upside in the commodity price increase. It comes down to funding the growth capital of an asset. With the potash that means funding the certification of the resource under the NI43-101 industry standards so that the company can confidently quote the resource it has and get maximum value for it.

NG: I understand that getting to ground and gaining real experience on location is something you encourage at all levels. Perhaps you can tell me more about that?

CD: With a chronic shortage of people in the sector, I’ve found that it’s very open to people from all walks of life, regardless of gender. Anyone with enthusiasm, that is hard-working, energetic, and able to create value; the sector is open to them! Everyone’s encouraged to go to sites, for example. We recommended one of our geologists take a two-year stint in Australia to get more experience in the field, rather than working in London for a private equity firm straight out of university. We’d love her to come back when she’s finished, of course, and I like to encourage people to get on-the-ground experience.

Another thing that I’d like to do in the future with people coming out of university without site experience, is to second them to one of our portfolio companies for short periods of time. That way when they come back to head office they have the full range of experience.

I think that anybody who is passionate about what they do will be successful. They will attract the same quality from other people. It’s fascinating to meet so many different people from the mining sector—many interesting characters—and some very successful people who really can achieve the impossible.

NG: How did you become involved in WIM UK?

CD: I got involved with the two founders of Women in Mining UK when they were looking to go to the next stage of growth. I quite like building things from scratch and helping companies to get to the next stage—like with CD Capital which was built that way, and when I was back at Normandy which was built from scratch and sold to Newmont in the three-way merger with Franco-Nevada. [WIM] was at that stage where we really needed to form a strategy and define its reasons for being; we had to ask ourselves, what did we want to achieve and do for women in mining, how to progress their personal development not just in the mining sector but other areas like presentation, networking and relationship-building. What really surprised me, and part of why I joined, is the sheer number of very talented women in the sector that I had never heard of.   

ABJ thanks CD Capital for their insights and assistance in this interview. For more information please visit http://www.cd-capital.com

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