Private capital in mining

The global mining industry continues to rapidly transform to support decarbonisation and the global transition to clean energy sources. Private capital is playing an increasingly pivotal role funding and accelerating this transition.

While private capital in mining has long been the domain of sector specialists, the energy transition and the long-term secular trends which go along with it stretch across the battery, automotive, manufacturing, transportation industries, among others. As investors seek to deploy capital across these industries to “invest with the trend”, they quickly realise what has been apparent to those in the mining industry for a long time – there is no transition without access to (and, therefore, the mining of) critical minerals.

Accordingly, there has been a notable uptick in interest in the mining sector from private equity. In Q3 2023 alone, the mining sector witnessed an unprecedented surge in private equity deals totalling approximately $5.2 billion, which represented a 1,377% increase compared with the previous quarter’s total and a 2,145% increase compared to Q3 2022. Further, nearly half of these deals were foreign direct investment transactions. This uptick in deal value and volume, involving private equity investors, signifies the heightened interest and involvement of international investors in mining, which should help provide further validation for a broader pool of private capital to participate.

Nonetheless, amidst the growing interest in mining, private equity firms deploying capital into the sector have encountered several challenges, many of which are what have long kept generalist investors on the sidelines. For private equity investors, two major challenges are cheque size and duration. A significant challenge lies in raising the full amount of capital required to move mining projects into production, with the International Renewable Energy Agency estimating over 35 trillion of capital investment needs to be deployed prior to 2030 in order to support a successful global energy transition. Additionally, given the limited life of private equity funds, finding investable mining assets/businesses in supportive jurisdictions that provide for sufficient risk-adjusted returns within the lifespan of a typical fund is an additional challenge. 

Some of these challenges will undoubtedly remain for investors, but government bodies around the world are doing their part to help alleviate the primary funding challenge and encourage investment into the mining sector. This includes funding programs such as the Inflation Reduction Act and the Defence Production Act in the United States as well as Canada’s Critical Minerals Infrastructure Fund. In 2022, the United States government provided approximately $250 million in funding through the Defence Production Act to aid American and Canadian companies in mining and processing critical minerals used in the energy transition¹. Additionally, Canada’s Critical Minerals Infrastructure Fund is allocating CAD $1.5 billion to support clean energy and transportation projects². Another CAD $1.5 billion will be allocated through the Strategic Innovation Fund to back advanced manufacturing, processing, and recycling of critical minerals³.  These coordinated efforts aim to reinforce supply chain resilience and enhance collaboration between the U.S. and Canada and will help to make mining investments attractive from a returns perspective and also reduce the hurdle to commit capital for investors which may have perceived the risks associated with mining to be too high.

The capital requirements into mining and the extraction of raw materials to help drive the energy transition remain immense, but the opportunity for private capital is equally great. Governments and affiliated institutions cannot provide all the capital required, and, therefore, the accelerated deployment of private capital from sector specialists and generalists alike will continue to be critical in helping to facilitate the global energy transition.