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LAVCA | The Association for Private Capital Investment in Latin America

A non-profit member organization

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Member Profile: Victor Muñoz, Managing Director and Regional Head Latin America, Denham Capital

May 28, 2014

LAVCA heard from Victor Muñoz, Managing Director and Regional Head of Latin America for Denham Capital, about their oil & gas, metals & minerals, and power & renewables portfolio, as well as the importance of an active ESG strategy.

LAVCA: Please provide some background on Denham Capital:

Muñoz: Denham’s roots go back to 2004; as of today we manage six global funds with total invested and committed capital of approximately US$8b. In Latin America, Denham has invested/committed about US$700m.

LAVCA: What is the geographic scope of Denham’s presence in the region? Where do you have offices and why is it important to be based locally?

Muñoz: The Denham office for Latin America is located in São Paulo and the firm has active investments in Colombia, Chile, Peru, Brazil, and Uruguay. Our investment professionals travel constantly through the region and have a strong network of contacts that helps source investments in each market. After North America, LatAm is the most active region for Denham.

Being on the ground in Latin America is extremely important throughout the entire investment lifecycle and has given us an advantage when sourcing and executing deals. Our local presence gives us:

  • Direct access to information we can’t get off the internet. For example, local news sources and industry experts have a better understanding of possible issues that could impact a portfolio company. With investments in power, we are keeping a close watch on the ongoing dialogue about curtailing energy in Brazil. The way this is discussed locally means more and allows us to better interact with our portfolio companies and the community.
  • A better chance to find the right investment opportunities. Without being on the ground it is hard to build sincere relationships and interact with the right business owners. In the case of many of our portfolio companies, I have built relationships with the entrepreneur long before (often, many years) he/she has created a business plan. With these relationships, we are able to create the foundation of the company together. One instance that comes to mind is my long-term relationship with a prominent geologist in Chile that eventually created our portfolio company Santiago Metals. Together we developed a business plan that was appropriate for our relationship and I trusted his ability to put together the best team. When we met, introduced through a friend – there was no need for an investment, but by the time he was planning to create a company, Denham was his first choice as a partner.
  • The ability to better execute the investment. With a multiyear holding period, it is important that we have a local presence to see through the execution of the investment. Being able to create and maintain relationships with the company, constituents, lawyers, accountants, consultants, and those that define the regulation are all key to this success.

LAVCA: How do you view the Brazilian market opportunity for Denham today and how has it evolved over the last 5-10 years?

Muñoz: Denham is very active in Brazil, where we have power and mining investments. Brazil is an attractive market for investments given its political stability, size, and resources. We ultimately entered the Brazilian market in 2008 because of the significant amount of resource and opportunity. At present, after several years of “exuberance”, asset prices are coming back to more reasonable levels making the country a focus of attention for investment.

LAVCA: Please tell us about some of your portfolio companies. You were fairly active in Latin America last year. Can you describe these deals and what factors make now the right time to invest? Overall, what synergies do you see between portfolio companies across various markets?

Muñoz: We look at hundreds of investment opportunities every year, but we are most attracted to the ones that we can shape ourselves. The more active we are early on, the less competition and the better fit it is for our investors. For many of our portfolio companies, Denham is the first choice as an investor. Some examples of active investments include:

  • Rio Energy – A Brazilian wind and solar developer who obtained Power Purchase Agreements (PPAs) for wind farms for 144 MWs in 2013. We expect this company to continue its rapid growth during 2014.
    • Stellar Mining – A Peruvian mining company executing consolidation of mid-size polymetalic assets.
      • Santiago Metals – A Chilean-exploration company targeting large copper deposits.
      • In all of these companies we are the controlling shareholder and execute our role from the company’s board. We make sure our companies share market intelligence, support each other in opportunity origination, and exchange best practices.

        Last year we made progress on several fronts. In addition to the advances of Rio Energy in Brazil, in Uruguay our global solar company started the development of a solar facility, and our mining companies in Peru and Chile, expanded their portfolios.

        LAVCA: What can you tell us about your mining portfolio? What LatAm countries currently have the most attractive mining investments and why?

        Muñoz: In Latam, we have mining investments in Peru, Chile, and Brazil. Our company in Chile explores for large copper deposits. In Peru, we are consolidating mid-size, polymetalic assets. And, in Brazil we have an advanced rare earth project. On their own, we see all of these investments as very attractive; they have different characteristics and are at different stages of development.

        Additionally, we are very interested in the Mexican reforms and are closely tracking the market. However, we need to be patient because even after reforms are passed, it takes time for the market to catch up. It seems to be very promising as far as oil & gas and the power sector, but we don’t have any immediate plans to open an office there.

        LAVCA: Given that Denham is investing in oil & gas, metals & minerals, and power & renewables can you describe your ESG strategy and give a specific example of how it has been implemented.

        Muñoz: ESG is implemented primarily through our portfolio companies, and overseen at the board level as well as by various Denham functions. Denham expects all of its portfolio companies to adhere to local requirements and best practices and we don’t invest in companies we don’t feel are doing their part. In general we require that the managers of each portfolio company are acutely concerned about the environment and community and take measures to discuss the impact and opportunities of their actions with the public. We want managers to be ingrained in the community. For example, in Peru – it is not enough to speak Spanish, but to be well versed in the Quechua language so more intimate relationships can be formed. Additionally, our management team works with the community to determine the appropriate actions for each market including providing support to build a school or road, or supplying power and water treatment. Overall, our companies are active participants, creating jobs and bringing other beneficial programs into being. We at Denham, from the Board of the company, are very active in making sure all the appropriate steps are taken and that everybody at the portfolio company is fully aware of their importance.

        LAVCA: What is the typical ticket size for your investments?

        Muñoz: We look for investments between US$50m and US$250m and we normally take control positions.

        LAVCA: What is the timeline and strategy for exiting your investments? Who are potential buyers?

        Muñoz: In general, our hold period for investments falls between 3 to 6 years and the majority of our exits are executed through a sale of the asset to a strategic. Similar to how we source deals, we begin the exit process by building relationships ongoing. In some instances, we enter into an investment with a specific long-term strategic in mind, but it is also possible that we don’t know until an opportunity comes up. Over time, we have seen that power assets are usually sold to a local strategic, but as with every investment we are always looking for the exit that will yield the best return for our investors.

        LAVCA: What challenges and opportunities do you predict for the energy and resources market in the next 5-10 years in Latin America?

        Muñoz: I expect a large set of investment opportunities in the power sector as main economies in the region continue to grow and electricity consumption increases. In the oil & gas sector, we should witness the development of unconventional technologies and associated resources (shell gas, tight oil).

        LAVCA: What do you predict your LatAm portfolio will look like 5 years from now?

        I would expect the portfolio to expand geographically to include Mexico and have a relative balance of investment in the three sectors of focus (power, mining, and oil & gas).

        Member Profile: Victor Muñoz, Managing Director and Regional Head Latin America, Denham Capital was last modified: April 13th, 2017 by Editor
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