BLACKROCK'S flagship mining fund doesn't hold a single share in royalty group Anglo Pacific. But its fund manager, Evy Hambro, has had his eyes on the company for the last five years.
     At the height of the mining boom, according to sources involved, Hambro's team at BlackRock did months of due diligence on Anglo Pacific, which has coal and iron ore royalties in Australia with Rio Tinto and BHP Billiton. The company's annual royalty revenue had pushed through $55m and insiders expected BlackRock's World Mining Trust to launch a friendly takeover bid. But the bid never materialised.
     Instead, Evy Hambro made a big splash entering the royalty business on his own. In mid-2012, BlackRock paid £70m ($110m) for an iron ore royalty with London Mining in Sierra Leone. Anglo Pacific had struck a smaller $30m deal with London Mining a year before. But Hambro's decision turned horribly wrong. In late 2014, London Mining went under, wiping both royalties out.

Off the Scale

     Hambro's foray into royalties has been well documented and widely criticised, taking some of the sheen off BlackRock's mining arm, one of the world's weightiest mining investors. The botched deal left “question marks” over the fund managers involved, said analysts at Numis Securities. Everything about the deal was wrong,

banking sources say. London Mining was a massive overhead on top of a marginal asset transporting iron ore by barge in Sierra Leone. “It was off the scale.”
     But Hambro's low-key move on Anglo Pacific, which has never previously surfaced, shows a different angle to his investment approach: one that is more considered, stealthy, proactive and aggressive than his sometimes stoney-faced public remarks otherwise reveal.

Mining Boom

     In 2010, the mining markets were flying. BlackRock, the world's largest fund manager, was the largest equity investor in the mining industry, with assets of $39bn. Its top mining fund manager, Graham Birch, had an impressive track record, but in January 2010, Birch retired, and at the age of 37, Evy Hambro took control.
     Six years later, almost all mining stocks have fallen, but some of Hambro's biggest bets have gone badly wrong. On top of London Mining's collapse, high profile investments in Glencore, First Quantum, Freeport and Nat Rothschild's failed coal float, Bumi, have all tanked in spectacular fashion. “Anglo American's the only bullet he's missed,” one senior analyst says.
     Some fates are worse than others, but in many ways, Hambro received an impossible inheritance from Birch, who had retired to his dairy farm in the south of England. Boosted by BlackRock's marketing machine, by mid-2011,

$50m to $100m was pouring into Hambro's funds per day. His firepower was greatest at the top of the market, so some of his largest deals, which have drawn the most attention, have turned out to be the least successful.
     “He's underperformed because he's running more money than anybody else,” one associate of Hambro's says. “After the financial crisis, gold kept going up, the hedge fund money piled in and QE was like liquid adrenaline.” BlackRock's mining team had “so much money to run”, he needed to “find ways” to deploy the capital.
     Royalties were a good way of doing that. Bank financing for the mining industry had dried up, royalties were beginning to fill the gap and they allowed Hambro to deploy tens of millions of dollars at once in large mining deals. “Evy was very excited about the royalty business then.”

Peeping Evy

     Insiders say it was unclear why he dropped the idea of a takeover bid for Anglo Pacific. It was the only royalty group listed in London and had a large portfolio of mining equities, making it comparable to an investment trust. But sources believe BlackRock used the due diligence process to examine the nuts-and-bolts of the royalty business, before setting up in competition.
     “It was all happening, then it wasn't,” one source says. “The cynic in me says, maybe they just lifted the bonnet, took a look, thought they...