Gold, tin, copper, iron ore, potash and now metallurgical coal. Diversification in metals and minerals appears to be a major emphasis for the investing wing of U.S. insurance giant Liberty Mutual in putting together its junior portfolio.
Liberty Metals and Mining just bought a significant chunk of a private metallurgical coal company that comes out Consol Energy’s sale of non-producing met coal assets in Alberta, Canada, for C$105 million to a company put together by merchant bank Forbes & Manhattan (a big player in junior financing and project development). Fitting, really. Insurers disperse risk. So in an already risky endeavour – junior investing – insurer-owned Liberty Metals and Mining spreads its cash across multiple commodities.
In choosing its favoured juniors, Liberty seems less concerned about the commodity precisely than the company, the project and its prospects. To be clear, Liberty Metals and Mining’s full portfolio of investments is unknown to me. But in going through the publicly listed juniors in which it has invested over the past few years, the diversified nature of its investments nonetheless becomes blatantly obvious, among some other attributes.
Here’s the list that I was able to compile today:
Alderon Iron Ore (iron ore, Labrador Trough, Labrador) ~ 19 percent stake
Allana Potash (potash, Ethiopia) ~ 14 percent stake
Celeste Mining (tin, copper past producer in England) ~ 42 percent percent stake
Red Eagle Mining (oxide/sulphide gold, Colombia) ~ 20 percent stake/2% NSR
Now Ram River Coal, a private company which Consol says has 380 million tonnes in coal resources, rounds out that list as Liberty Metals and Mining’s latest investment. How much it owns of Ram River is not clear, however. A Forbes & Manhattan spokesperson was unavailable to speak about the new company today.
But, despite this fog, it’s fair to say that it must own a sizeable stake. At the same time that Forbes & Manahattan bought the project through Ram River Coal for $105 million, it did an offering of common shares at $1.00 to raise $80 million. Liberty Metals and Mining, Consol said, was the lead investor in that offering along with the Lundin family. Presumably the ownership structure leaves Forbes & Manhattan and the Lundin’s along with Liberty Metals and Mining with fair-sized slices of the Ram River pie.
Rather than a single commodity, the common thread in these investments is Liberty Metals and Mining’s focus on juniors with some chance (or intention more properly) of making a mine in the next few years. These are not early-stage exploration plays, though there may be some of that in the underlying junior assets. Each company above either already has or is quite near having (in Red Eagle’s case) a resource estimate. It seems, to some degree, Liberty Metals & Mining follows a route much preferred by private equity these days – to speculate on juniors with something that seems somewhat ready to go to production.
Further, where there are scoping studies, as in Allana and Alderon’s cases, the financial modelling suggests very strong returns. Allana has pegged its potash projects internal rate of return (IRR) at 40 percent while Alderon estimates its IRR on the Kami iron ore project at 35 percent.
But Liberty Metals and Mining is clearly not only focused on projects with financial guesstimations (projected models based on longterm forecasts of metal prices, AKA educated guesses). Red Eagle Mining has yet to put out a resource estimate on its San Ramon gold project in Colombia – where there are some good looking intercepts – and Celeste Mining is still building on its existing resource estimate at its tin-copper projects in England (last in production in 1998).
As far as the latter acquisition, it is interesting to note that Liberty Metals and Mining did a bit of bottom fishing. It acquired a near major stake in Celeste in June this year for $2.1 million through a private placement.
But back to the subject at hand: about Liberty Metals and Mining’s forays into the junior sector it seems fair to conclude that it is drawing comfort in projects – their potential – not the future of particular a metal or mineral.