rab/abu dabbab., page-4

re: rab/future financing of projects? Hedge funds - a fresh source of finance?
By: Rhona O'Connell
Posted: '24-FEB-05 12:50' GMT

LONDON (Mineweb.com) -- Recently we wrote about a presentation given by Mark
Parker of African Eagle and the company's experiences of, and befits from,
listing on AIM. At an Association of Mining Analysts Seminar in London this
week the picture painted by African Eagle was given extra independent colour
and texture with presentations from Corporate Financier Frank Moxon of
London stockbrokers Williams de Broë, and senior hedge fund manager Philip
Richards of RAB Capital.

Moxon said that although he was originally asked to talk about European
stock markets with respect to the mining sector, he was going to concentrate
on London. This was not as cheeky as it sounded - he produced figures that
showed that, during 2004, there were 37 mining flotations in Europe. One was
on Stockholm, 36 were in London (AIM) and Paris, Amsterdam, Brussels, Oslo,
Lisbon and the London main board boasted zero between them. London's major
competitors are Australia and Canada, although he did suggest that London
tends to have a better global outreach than these two stock markets, who
tend to concentrate on domestic issues rather than overseas stocks, thus
putting up a good Englishman's argument for his local Exchange!

Setting his comments in a wider context, Moxon looked at the relative market
capitalisation of different sectors on the London Main Board. Mining is
often regarded as a small sector and indeed the individual market
capitalisation of the majority of individual gold mining stocks is too small
to reach the radar screen of generalist fund managers; the larger mining
companies, however, are certainly large enough for scrutiny and Mr. Moxon's
figures showed that the Oil & Gas sector is the second largest sector on the
main board, with a combined market capitalisation of more than £187 billion
(approximately $360 billion), while mining stands fifth, at more than £69
billion ($130 billion).

Meanwhile, however, while there were 49 IPO's on London's main board in
2004, none of them were mining companies. Those issues were all on AIM and
this is where AIM comes into its own. This is to some extent underscored by
the fact that AIM does not require a history of three years' trading, as
does the Official Market, and that the regulatory requirements are less
stringent than on the Official Market and there is no minimum requirement as
to company size; similarly the requirements with respect to proven and
probable reserves are less stringent. There is a strong degree of
self-regulation, however, with the Nomad acting as the regulator; his advice
is retrospectively checked by the AIM.

He pointed out that while AIM might have originally had something of a "Wild
West" reputation - notably during the dot.com boom, but that this has now
abated in favour of something much more sedate and reliable and that the
largest company on AIM (First Calgary Petroleum) is large enough to be on
the FTSE 250.

Meanwhile RAB Capital has over $2 billion under management and therefore
might be considered to be too large to look at smaller capitalisation stocks
such as those listed on AIM (despite First Calgary). This is not the case,
however, given the way that hedge funds are structured and regulated. Philip
Richards explained how hedge funds can operate under more or less any
philosophy; from "conservative" to "impressive" and different funds have
different risk-reward profiles accordingly. World wide, hedge funds run
approximately $1 trillion, of which European funds account for roughly $100
billion and RAB $2 billion. These funds have a very broad jurisdiction and
although they are properly regulated, they have more flexibility than other
funds in that there is no requirement to benchmark and no requirement to
report to trustees. The former of these factors in particular means that
hedge funds can move swiftly.

They are taking an increasing interest in the mining sector. They are
already active in commodities, as is well documented, but the recent
improvement in the mining sector is drawing increased interest from these
operators. The sector's poor relative performance over the 1980s and 1990s
means that ether is little experience among hedge fund managers of owning
mining stocks, but this is changing and by virtue of their interest they are
adding liquidity to the sector.

At present, with currencies offering less than 5 percent annual return, or
in some cases less than 4 percent, most hedge funds are currently chasing
relatively stable returns with respect to risk and currently a steady 8
percent return is attractive to the majority of funds, focused on the more
liquid stocks.

RAB Capital is itself listed on AIM and runs twelve different funds,
including "Special Situations" and "Energy", both of which tend towards a
high risk-reward ratio. The Special Situations fund has approximately $800
million under management of which over $600 milion is in energy or mining.
In the past these funds have been bought by High Net Worth individuals or
Family Offices, but they are becoming increasingly attractive to fund
managers who are running very large funds and use hedge funds such as these
to add some spice to their returns.

Some hedge funds are extending their interest and influence in the market.
As Mr. Richards signed off he offered the interesting prospect that they may
themselves become involved in project finance in the future and to the
hedging of commodity prices. Move over, the investment bank?

d.