After Dacha settlement, Bharti eyes $1 billion private equity fund

11/15/2012 8:37:57 PM | Stockhouse Editorial
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If Bharti has learned anything from the Dacha proxy contest, it is that he needs to spend more time talking to fund managers about the strategy and goals of his global mining house.

Earlier this week, Dacha Strategic Metals Inc. (TSX: V.DSM, Stock Forum) said it has agreed to reconstitute a slate of director nominees who will stand for election at an upcoming shareholders meeting on November 28.

The move brings to an end a high profile proxy contest that shone the spotlight not only on Dacha, but also on executive Chairman Stan Bharti, and his Toronto-based Forbes & Manhattan Inc. group.

Dacha is one of roughly 30 companies that fall under the umbrella of Forbes & Manhattan, which operates not only as a private merchant bank, but also as an incubator, and financier for junior resource companies in its stable.

It boasts an international advisory board that features such well known names as broadcaster Larry King, financial commentator Jim Rogers and former Canadian foreign affairs minister Pierre Pettigrew

If Bharti has learned anything from the Dacha proxy contest, it is that he needs to spend more time talking to fund managers about the strategy of a global mining house that is engaged in key areas of the resource sector, including precious metals, agriculture, oil and gas, and in Dacha’s case, rare earth elements.

“In the past two years, I haven’t spent enough time talking to fund managers, talking to the sell side, explaining the model, explaining who we are,’’ said Bharti in an interview with Stockhouse.

“Half of the people are unaware that I’m a mining engineer [by training] and that I actually built mines. “I also ran a large and very successful consulting company for ten years.’’

“So I want to bring the message that we are hands on people. We are not financiers. We are mine builders. We are operators. That is our strength.’’

A 59-year-old mining engineer from the Punjab region of India, Bharti began his career in Sudbury, Ontario in the 1970s, working initially with Falconbridge Ltd. before starting his own engineering contracting firm BLM Bharti Engineering Inc.

He launched Forbes & Manhattan in 2001 after deciding that the real money in the resource sector is made at the junior end of the market by companies that find undervalued assets, and unlock that value by developing assets over a period of three to five years.

These are companies that typically trade at between 20 cents and $2 a share.

Forbes & Manhattan plays an incubator role for companies in its stable by providing assistance in a number of key areas, including geology, engineering, finance, accounting and administration.

“Our strength is finding undervalued assets in emerging markets, working them for three to five years, raising capital, building [the asset], appointing a top notch management team, and surrounding the team with additional legal, financial and capital markets expertise,’’ Bharti said.

In this environment, he said the CEO can operate as if he is running a major company without the overheads, because the costs are shared.

“This is essentially the business model and it has been very successful,’’ Bharti said.

Active in over 30 countries, Forbes & Manhattan has raised $3 billion in capital markets during the past decade.

Its biggest win so far came in May 2011 when Consolidated Thompson Iron Mines was scooped up by Cliffs Natural Resources Inc. (NYSE: CLF, Stock Forum) for $4.9 billion in cash.

Other successes include the sale of Desert Sun Mining and its Brazilian gold mine to Yamana Gold Inc. (TSX: T.YRI, Stock Forum) (NYSE: AUY, Stock Forum), for $735 million.

Still, financial markets have been hard on the junior sector this year and during the Dacha proxy contest, much of the conversation centred around what Forbes & Manhattan gets paid for the services that it provides to member companies.

“The perception is that Forbes charges these crazy fees,’’ said Bharti.

“The other perception is that all of those fees go to Stan Bharti.’’

Speaking to Stockhouse Bharti said this is patently false. He says an in house analysis shows that fee payments to Forbes & Manhattan amounted to $28,000 per company per month last year, and that this is disclosed in company information circulars.

“That fee is like having one extra person in a public company,’’ he said.

The Forbes & Manhattan President is anxious to set the record straight because the mining house is making plans for its first private equity fund, one that hopes to raise up to $1 billion to be deployed only in new deals.

The aim, he said, is to allow companies in the stable to remain private for a longer period during the incubation process.

“If we can keep companies private for longer, the leverage is far greater for our shareholders.’’

As for Dacha, Bharti said he has reached an agreement that will leave Forbes & Manhattan with two seats on the 7-member board. “We have agreed to a reasonable change of control, a smooth handover to the next management team and we will move forward.’’

The stock traded Thursday at 40.5 cents, leaving Dacha with a market cap of $30.4 million, based on 75.1 million shares outstanding. The 52-week range is 59 cents and 32.5 cents.

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