The mining-focused firm is selling nickel and copper projects in Brazil to strategic buyer Sibanye -Stillwater
Private-equity firm Appian Capital Advisory is poised to generate a 60% internal rate of return from the sale of two Brazilian mining companies, benefiting from rising demand for metals used in electric-vehicle batteries, according to people familiar with the matter.
The firm is selling Atlantic Nickel and Mineração Vale Verde to South African metal producer Sibanye-Stillwater Ltd. for a total of $1 billion in upfront cash. Formerly called Mirabela Nickel, Atlantic Nickel operates the Santa Rita nickel-sulphide mine in Brazil’s Northeast, while Mineração Vale Verde owns the Serrote copper and gold project in the same region.
The deals, which Appian announced this week, are the latest of several exit transactions this year by the London-based firm. Michael Scherb, Appian’s founder and chief executive, said the firm’s strategy involves investing in mining projects at the preproduction stage and making them operational to attract a larger buyer.
Appian acquired Mineração Vale Verde for $40 million in 2018 and invested additional $195 million, including $140 million in financing, to build out the open-pit Serrote project, Mr. Scherb said. The mine came online earlier this year with an expected output of 20,000 tons of copper annually.
As part of the transaction, Appian will retain a 35% share of the revenue from Serrote’s gold production, the firm said.
“Our business model is to invest a few years before production, where we see mispriced value or we see operational opportunities to bring a mine into production, and then sell it to a mining company whose cost of capital is clearly lower than ours,” he said.
Also in 2018, Appian bought Atlantic Nickel out of bankruptcy for $68 million. Under Appian’s ownership, the company did exploratory work that extended the Santa Rita mine’s productive life to 35 years from eight, Mr. Scherb said. Appian invested around $50 million in the project, while benefiting from a $1 billion investment by the prior owner, he added.
The Santa Rita mine restarted operations early last year and is producing the equivalent of roughly 20,000 tons of nickel annually. The deal with Sibanye-Stillwater also provides for a 5% royalty to Appian, currently valued at $218 million, on the mine’s future production.
Rising demand for metals such as copper, nickel and zinc, which are used in electric-vehicle batteries and in renewable-energy equipment, is fostering mergers and acquisitions as miners and end-users such as auto makers strive to secure sources of raw materials, industry consultants say.
The Appian transactions, which will give Sibanye-Stillwater its first assets in Latin America, capped a bidding process that attracted more than a dozen participants from four continents, Mr. Scherb said.
“What’s clear is that energy transition commodities are the main focus for mining M&A going forward,” he said.
With the deals, Appian has exited seven of the eight investments it made from its first fund, which closed in 2014 with $375 million, Mr. Scherb said. Earlier this year, Appian sold gold producer Roxgold Inc. to Fortuna Silver Mining Inc. and exited two royalty investments.
The firm expects to finish nearly committing its latest, $775 million fund within the next two quarters, Mr. Scherb said. He added that Appian sees opportunities, particularly in Latin America, to buy family-owned businesses as well as to establish joint ventures with mining companies seeking partners to develop noncore assets.
“Capital is still short in the sector and mining companies will always need capital, given how capital-intensive the space is,” he said.
Wall Street Journal: Luis Garcia, Editor