Oil money now flowing to mining

The government of Ras Al Khaimah, a part of the United Arab Emirates (UAE), has set up what may become the first Middle East mining firm with operations around the globe: Dubai-based RAK Minerals & Metals Investments (RMMI), a joint venture with Trimex Group. With an annual investment budget of US$1 billion plus, RMMI invests in mining companies worldwide. It currently concentrates on copper, coal, clay and feldspar mines. A copper smelter may also follow a few years down the road.

One result of high oil prices is tremendous cash flows to oil producers. These have to be invested, and some of the money will find its way to resource-sector investments. Now Ras Al Khaimah, a Mideast emirate, is going a step further: it has set up RMMI to invest directly in mining ventures around the world. It would be safe to assume that more oil-funded direct mining investments will follow.

In an interview with Madhu Koneru, managing director of both RMMI and Trimex, Koneru says that RMMI has not been established to just invest in any good mining story that comes along, but rather with a strategic view to assist Ras Al Khaimah in its infrastructure development projects, which consume vast amounts of raw materials.

“RAK Minerals was set up to be the first Middle East mining company with a global reach,” Koneru says. “We have the idea of developing commodities which are directly related to infrastructure: coal, copper, and the raw materials used in the manufacturing of ceramic tiles: clay and feldspar. These four are our favourites.”

Koneru says that the initiative to form RMMI came out of a need to shield the Ras Al Khaimah government from escalating costs of infrastructure-related materials: “RMMI is a joint venture between the Ras Al Khaimah government and Trimex. Trimex has been in the mining business for 25 years. The reason why this joint venture was initiated by the Ras Al Khaimah government was because the government wanted to do a lot of development work in the city [Ras al Khaimah], and they realized that the infrastructure costs for developing the city were going to be very high, so they came to us [Trimex] offering to form the joint venture, and they wanted us to manage the joint venture so that they could hedge the [raw material] costs of developing the city.”

The scope of infrastructure projects in the UAE is vast, with a target of doubling the population to 10 million within ten years. So far this year Koneru has committed US$650 million, of which US$250 million was allocated to two copper-cobalt projects in the Democratic Republic of Congo (DRC), US$200 million to three copper and polymetallic projects in Armenia, and US$200 million to a possible coal project in Indonesia. There are also small investments in clay and feldspar mines in Indonesia, India and Thailand.

Since his investment budget for 2008 is US$1 billion, he is planning to invest another US$350 million, and he is willing to exceed this budget if the right opportunities come along. In keeping with his global reach mandate, he is particularly interested in Australia, Southeast Asia and the Americas.

The DRC investment consists of a small producing copper mine, plus two copper-cobalt projects totaling 2,750 sq. km. The Armenia investment includes three greenfield copper and polymetallic projects totaling 340 sq. km. The Indonesia coal deal has not yet been finalized.

Koneru’s view of his company is the polar opposite to that of a hedge fund or an investment bank. He wants to add value through his knowledge of the mining business, to create strong partnerships, and then leverage long-term relationships to more projects.

He has two ideal investment targets: a mid-size company that owns a mine which it would like to expand, and a greenfield project where a resource has been identified, which needs more drilling to bring it to JORC standards (Australian standards, somewhat similar to National Instrument 43-101.) In both cases, he believes that companies will benefit from working with someone who understands the mining business, who speaks their language, and who can support them.

Although he is open to building smelters eventually, this is not his current focus. “The resource is more important than the smelter,” Koneru says. He gives as an example his plans for Armenia: “In Armenia right now the plan is to finish the exploration work, put up a concentrate plant, then start production of concentrate.” His time scale is two to three years, and a smelter may follow once the plant is producing. In the DRC, RMMI has agreed to build a US$200 million copper-cobalt smelter.

He says that the reason Trimex was brought onto the scene was because of their knowledge of the mining business. Prior to that, Mideast investors were comfortable investing in smelters, but not in mines. Looking around him in the Persian Gulf area, he sees investments in aluminum smelters, attracted there by the availability of energy. He is not aware of investments in lead or zinc smelters or in steel mills in the Persian Gulf.

Koneru’s telephone number is 9714-883-9363 and his e-mail is madhu@trimexgroup.com. RMMI’s website is rakminerals.com.