➤ Zinc is an attractive, if perhaps counterintuitive, base metal investment due to its energy-transition applications

➤ Lithium projects are slightly overvalued, making other metals, such as vanadium, a better investment target

➤ The effect of synthetics makes investing in graphite murky

Colorado-headquartered RCF Management LLC (RCF) is a global alternative investment firm that runs a group of commonly managed private equity funds, with about US$2.5 billion in assets under management across more than 30 mining commodities.

When one of the funds, Resource Capital Fund VII LP, terminated a US$30 million debt and equity funding package in 2018 for then-Mozambique focused graphite developer Battery Minerals Ltd., it was seen as emblematic of the inability of ex-China graphite hopefuls to source debt at the time, despite the huge demand that was forecast.

Brett Beatty of Resource Capital Funds Management Pty. Ltd. Source: Resource Capital Funds Management.

On Oct. 2, Resource Capital Fund VII LP more than doubled its ownership in Australian Vanadium Ltd. to 18.52% after supporting the latter's merger with Technology Metals Australia Ltd., which is set to create Australia's leading vanadium player.

The previous month, on Sept. 22, Resource Capital Fund VI LLP sold Australian mining-focused engineering firm Ausenco Ltd. for $578 million. In December 2022, the fund closed on its acquisition of Canadian zinc developer NorZinc Ltd. Zinc is used to galvanize steel in electric vehicles and elsewhere, and as a coating to prevent rust on solar panels and wind turbines. There is also a zinc-based battery chemistry.

S&P Global Commodity Insights interviewed RCF's Brett Beatty, managing director for Australia and investment team leader for Resource Capital Funds Management Pty. Ltd., about how the firm's transactions of late reflect trends in the commodities where it invests. The interview has been edited for clarity and brevity.

S&P Global Commodity Insights: What is your strategy as it pertains to metals and mining?

Brett Beatty: We've been an investor in metals and mining for 25 years. We've done over 30 different commodities in 50 different countries. Though there have been different investment drivers over that time, presently we're seeing a fundamental change in demand dynamics in the energy transition space. That's sustainable for decades to come, as historically we would see demand driven by the growth in demographics and global GDP, but now we're seeing a strong emphasis on moving away from a liquids or a petroleum-based energy source to clean energy — whether it be nuclear or renewables of varying degrees, they all require a certain amount of metal commodities to get that done.

So regardless of what your view is around the state of China at the moment or European growth opportunities, the reality is people are still making that transition somewhat regardless of immediate economic developments. We see that as a huge driver of opportunity, but it's not the only thing we invest in. We're still strong on gold as seen in our investment in Genesis Minerals Ltd. in Western Australia recently.

Though we're excited about battery metals given the strong demand pool, you have to pair that with valuations, and at the moment in the lithium space, valuations are probably overshot at a little. But ultimately, the demand will be there for decades to come.

So what are your preferred battery metals at the moment?

It's always copper. There's a huge amount of demand regardless of what sort of battery technology you want to lean into. Even zinc is pretty attractive, and that might not come as an intuitive commodity investment, but look at galvanizing for the energy transition infrastructure that's required, there's a huge amount of investment there that needs to be done in order to transition away from coal and gas.

We own 100% of NorZinc now as well. That was one of my first transactions when I was based out of North America. That was a similar approach where you've got a really high-quality asset where it made no sense in the public markets. And so we've taken it out of that environment and are looking to continue to move that asset forward. We finished the first winter road in nearly 30 years there this past winter.

How does RCF see the vanadium market after backing Australian Vanadium's merger with Technology Metals?

It's a commodity we've been looking at for more than 10 years. Vanadium is primarily in an alloy business, and that's where all the volume lies, but we've been attracted to the emerging energy transition element to it. A couple of years ago, we did a deep dive because there are a lot of names around not only Australia but globally, and formed a view that Technology Metals was certainly the most attractive thing from our perspective.

We came onto Australian Vanadium's register in March, and have had a view that in the best interests of not only both companies but also the ore body which they share, we wanted to ensure it was developed appropriately. So we are very supportive of the merger due to the localized synergies that can be extracted from not having two companies compete for infrastructure, resources, financing and offtake.

The demand side of vanadium is a long way behind where lithium is. The market understands that about vanadium, but we prefer to take a countercyclical view in particular commodities where we still see a lot of uplift coming. We don't just look at commodity prices; we look at fundamental asset quality, but if we had a choice between where to put our money right now, it's certainly vanadium over lithium when you look at the opportunity around equity valuations.

In 2018 RCF said the graphite market "no longer meets its investment criteria." Five years on, where does RCF sit on graphite?

It's an interesting internal topic at the moment. It is getting some attention. I wouldn't say we've formed a view around "now is the right time to step back in." There's no shortage of graphite projects out there. What we're trying to grapple with is just what is the true impact of synthetics. There is a place for conventional graphite projects, but that's causing a lot of internal dialogue at the moment around whether this is the right time to be jumping back in.

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