- Chinese export controls highlight global dependence on single source for rare earths
- Governments to offer investment and regulatory support for domestic projects
- Funding for projects and mining companies includes equity and private credit
Today’s protectionism may make rare earth or critical mineral projects look more attractive, said Appian Capital Advisory founder and CEO Michael Scherb.
The increasing polarization of the international economy, through tariffs or alternative forms of protectionism, pressures countries to secure their critical minerals supply chains, the CEO said in an emailed interview. This potentially makes these assets look more attractive, as they could gain market share if Chinese-sourced materials becomes pricier, he added.
The London-based venture capital and private equity principals’ main investment thesis revolves around providing long-term capital for the metals and mining industry, the executive said. Appian has USD 3.6bn in assets under management (AuM), 5,000 employees and nine offices globally. Since it was founded in 2011, its funds have invested in 30 companies and exited 13, the CEO said. Its latest exit was MVV, owner of the Serrote open-pit copper-gold mine located in Alagoas, Brazil, for USD 420m, as reported.
The Chinese export controls of certain minerals highlight the extent of the global economy’s dependence across many key sectors – defense, energy, transport, and medical – on a single source of supply for rare-earths, Scherb said. Chinese mines produce about 60% of the world’s rare earths, and the country processes nearly 90% of them, he noted. This heightens the need to develop more secure global supply chains for rare earths to support future growth in advanced manufacturing.
Portfolio
Appian’s Australian portfolio company Gippsland Critical Minerals (GCM) estimates the Fingerboards deposit, which it develops, has the potential to provide 7 .1 % of the global supply in the heavy rare earths dysprosium and terbium (DyTb) and 1.4% of the light rare earths neodymium and praseodymium (N dPr), Scherb said.
Appian also owns Atlantic Strategic Minerals (ASM), a mineral sands mining and processing company in Richmond, Virginia. The mineral sands contain a high concentration of economically valuable heavy minerals, including titanium-bearing minerals like ilmenite, rutile, and leucoxene, as well as zircon and monazite – a key source for extracting various rare-earths, including lanthanum, cerium, neodymium, praseodymium, and samarium, Scherb said.
Additionally, markets where Appian operates, such as the US, Australia, and Canada, are likely to offer investment and regulatory support to their domestic supply, the executive noted.
Investment Thesis
Instead of chasing commodity cycles, as do short-term capital-chasing retail investors or hedge funds, Appian’s strategy is to provide LPs with exposure to core global thematics, particularly the energy transition, Scherb said.
Investing in a renewables fund may result in a single-digit IRR, but investing in all the raw materials providing the feedstock for renewable infrastructure can generate a return in the mid-20s while being exposed to the same themes, Scherb said. The global economy requires 3 billion metric tons of mined metals between 2024 and 2050 to power the transition necessary to reach net zero, the executive said.
Appian has a technical team of 90 people, mostly comprised of geologists, engineers and metallurgists, that allows it to offer a miner-to-miner approach. “This technical arbitrage, combined with a long-term approach, is a key differentiator when competing against both private capital investors and publicly listed mining operators;’ Scherb said. It has helped Appian bring 12 assets into production in the last seven years, which is more than the five largest international mining companies combined, the executive stated.
In addition to the technical approach, Appian has a financial team that looks at structuring a deal, capital structure and securing offtake agreements, Scherb said. The third aspect of its investment strategy includes an analysis of the quality of management and social community risk, he added. The three-pronged strategy allows Appian to reduce downside risks significantly, he said.
Private credit
Unlike traditional lenders that require shovel-ready projects and impose rigid covenants, Appian also offers private credit solutions, which can be structured much earlier, from the preliminary economic assessment (PEA) stage through to production and have less restrictive terms, the CEO said.
“Private credit offers an excellent combination of downside protection, customized structuring, and equity-like upside, particularly well-suited to mining, where traditional lenders have withdrawn since the 2012 super cycle,” Scherb said.
Many mining developers today are pre-revenue and middle-market, making them ineligible for conventional bank debt, he added. Appian’s private credit strategy fills this gap, the CEO said.
Tickets
For equity investments, Appian typically targets a deployment range of USD 100m to USD 300m, Scherb said. On the credit side, the investment range is generally between USD 75m and USD 200m, he said. Appian can bring in co-investors for larger opportunities when appropriate, he added. The average holding period is approximately five years, but there is room for flexibility, the CEO said.
Appian Natural Resources Fund III is sized at approximately USD 2.1 billion, about 50% of which has been invested or committed, the executive said. It will raise Fund IV only when the conditions are optimal for its investors and when the existing portfolio is on a strong path to exit, Scherb said.
Article written by Priscilla Murphy. Printed with permission from Mergermarket. This article was first published on 5 May 2025.
