Industrial investments require patience

Kimmo Viertola | 2017-06-16

Value creation in industrial projects requires investors to be patient, to actively respond to changes and to prepare for follow-on investments. The result is a long-term industrial operation that is building new – a board machine, a mine, a ship – and rewarding all the parties participating in it.

Tesi’s industrial investments finance significant industrial companies and their M&As and investment projects. Value creation in these investments is very much the same as growing shareholder value in other companies. It is based on improved sales growth and profitability. As in other cases, growth is achieved through M&As or by taking the company to new markets.

Value creation in industrial projects, however, starts even before business operations. Feasibility and execution plans of industrial projects can take years to prepare. In large industrial investments, like mining projects, just determining the economic potential of promising ore deposits takes a year or two. One of the bottlenecks in the financing of mining projects, for instance, has specifically been the preliminary phase feasibility studies. This is when Tesi comes in as an investor.

As the plans become more definitive, the investor risk decreases and the likelihood of execution grows. Participation in the project becomes more attractive also for new investors, who can assess risks and return expectations more accurately.

At our portfolio company Keliber, for example, the feasibility study of lithium production is two-phased. The preliminary study indicated that the project would be feasible. Next, the company raised additional funding and preparations began on the definitive feasibility study, which will be more accurate in terms of costs and estimates. It will be completed at the end of this year and will cover the more detailed execution plan. Based on that, the company will seek new funding for the implementation of the mining and processing plant.

Feasibility studies focus only on factors within the company’s scope, i.e. costs and timetables. Potential price changes in global markets and delays arising from legislative changes must also be prepared for and taken into consideration.

Mining projects have frequent changes in ownership. The owners that focus on project development plan a construction-feasible project and then exit. The new owners, in turn, are professionals in construction and operational startup.

Kimmo Viertola

Investment Director

Kimmo Viertola (MSc Econ) works as Investment Director in the Growth & Industrial Investments team at Tesi. Kimmo has worked in Tesi since 1998. His previous positions in the company included assignments involving direct investments in companies as well as investments in funds. Prior to that Kimmo worked in a range of advisory and corporate financing duties, both in Finland and abroad, including positions in Teollistamisrahasto Oy, FennoScandia bank and PriceWaterhouse.