Mining fund has its eye on 'blue sky' enterprises

Sinotech Minerals Exploration Co Ltd and Power Capital LLC announced on Thursday that they will establish a mining fund totaling 1 billion yuan ($161.9 million), which will seek opportunities among fast-growing small and medium-sized mines.

The first phase of funding is 500 million yuan, of which 100 million yuan will come from Sinotech Minerals.

The fund will have an eight-year investment horizon and a target internal rate of return of more than 30 percent.

"We're looking for 'blue sky' mining programs, which are small and medium-sized mines with cash flow," said Wang Jingbin, chairman of Sinotech Minerals. "They have high growth and merger and acquisition value."

Wang said that these "blue sky" miners have a good chance of finding mineral deposits and at a relatively low cost.

Mineral resources can be divided into three categories, metallic minerals, nonmetallic minerals and energy minerals.

The fund will also invest in large domestic and foreign mining programs.

"Investment in the mining sector is steady, because as long as mineral resources are found, they can bring an immediate return," said Wang Xiaobin, chairman of Power Capital.

"Mineral resources have been the material basis of social development, and because they are rare and finite, they get attention from venture capital and private equity investors," said Li Ling, an analyst at ChinaVenture Group.

With tougher competition in the Chinese venture capital and private equity market, there have been more specialized funds, including those in the mining sector.

One leading PE firm - JD Capital Co Ltd - has set up a mining fund totaling 500 million yuan that will target mature, well-run enterprises and those with high growth.

Power Capital also has the Redstone Mining Fund with 1.5 billion yuan, which invests primarily in domestic and international companies.