Mining News Daily

The mining start-up industry will be damaged if investors in RAB Capital’s flagship $923m (£502m) hedge fund reject restructuring proposals at an emergency meeting on Monday, a mining entrepreneur warned.

Irwin Olian, chairman and chief executive of Sacre-Coeur Minerals, a Canadian company in which RAB’s Special Situations fund invests, said it would be “extremely negative for the whole industry” if the fund were wound up. RAB has told investors the fund will be closed if they do not agree to lock up their money for three years.

Special Situations has recorded terrible performance recently, dropping 54 per cent in the year to September 18, and many investors have asked for their money back.

The fund has also suffered from its investment in Northern Rock, where it was the second-biggest shareholder when the mortgage bank was nationalised, and its controlling stake in privately-held motor racing series A1 Grand Prix.

The warning underlines how troubles at hedge funds can have knock-on effects in the real economy. Hedge funds have moved into private equity and early stage investing as well as being providers of capital to companies through placements, rights issues and convertible bonds, in particular.

“RAB provided high fundamental value for the [mining] industry as a whole by creating so many jobs,” said Mr Olian. “The last thing you want to do is dump your positions at the bottom of a panic.”

The fund, the biggest in RAB’s $4.7bn stable, has about three-quarters of its money in small-capitalisation mining companies, many of them unlisted or traded on Aim or Toronto’s TSX Venture Exchange.

A series of other hedge funds have been forced to wind up or restrict withdrawals this year, most recently the flagship funds of London’s MKM Longboat and Powe Capital, as investors pulled their money

Source : http://www.ft.com