Everyone is waiting for the PE guys to deploy their capital, don't hold your breath...

Everyone is waiting for the PE guys to deploy their capital, don't hold your breath...



Mining’s $8 Billion of Private Equity Seen Reviving M&A - Bloomberg

 

The
world’s mining assets may be the target of mergers and acquisitions as
an $8 billion pool of private-equity money that has lain dormant is
stirred this year by attractive valuations and predictions of resilient
demand for raw materials.

Some of the biggest names in the industry are keen to buy assets at the same time as the world’s largest producers including Rio Tinto Group are shunning unwanted mines. Former chief executive officers Mick Davis
of Xstrata Plc and Barrick Gold Corp.’s Aaron Regent are plotting a
return to the business by buying mining projects, backed by private
funds. Last week two new mining investment ventures were started, one
backed by Warburg Pincus LLC, the other founded by two former JPMorgan
Chase & Co. bankers.

While buyout firms have increasingly
targeted mining since 2012, only about 14 percent of the almost $10
billion raised in the last two years has been deployed, according to
data compiled by Bloomberg Industries. That could change if they face
pressure from their investors to act, Michael Rawlinson, co-head of
mining and metals investment banking at Barclays Plc.

“They’ve
all set up, no one’s done anything,” London-based Rawlinson said. “The
sand is going through the hourglass and the money is going to get taken
away if they don’t start spending.”

The optimism for a revival in
mergers and acquisitions this year comes as nearly 8,000 executives,
bankers and analysts descend on Cape Town this week for the annual
Mining Indaba conference.

Lower Prices

While valuations remain depressed, potential buyers are attracted by signs that the bottom might be near. At the same time, BHP Billiton Ltd. (BHP), Rio Tinto and Anglo American Plc (AAL)
are among major mining companies seeking to shed unwanted and
higher-cost assets as part of an industry-wide push to trim expenses and
bolster profits. This combination of reduced values and an influx of
mines for sale is luring private equity investors.

“Private
equity is now looking at the sector with stronger interest, which it
hasn’t really done before,” Raj Khatri, senior managing director, head
of metals and mining for Europe at Macquarie Group Ltd.’s investment bank in London,
said in an interview. “There’s an increasing wall of money now focused
on the sector. For the right assets at the right price, it’s a really
excellent time to buy.”

Ex-JPMorgan Bankers

Last month
Citigroup Inc. upgraded its 12-month view on the industry to bullish
from neutral, its first such call in three years. The bank cited rising
optimism that demand for raw materials from China,
the biggest buyer, will remain resilient. Improving growth out of the
U.S. and Europe may also support prices, Citigroup said.

M&A in the mining industry
last year slumped more than half to $81 billion compared with a year
earlier, data compiled by Bloomberg show. According to an Ernst &
Young LLP report today, private equity alone has the capacity to
complete $10 billion of mining deals this year.

Anglo American
has said it’s identified as many as 15 assets for divestment, while
Deutsche Bank AG has put the value of all projects that could be sold at
$35 billion. Mining companies are also looking for capital to fund new
mines.

Michael Scherb, a former JPMorgan Chase banker in London,
completed a $375 million fund last week, called Appian Natural Resources
Fund LP, to target mining assets including those being divested by the
majors.

‘Just Right’

“We’ve hit the timing just right,”
he said. “It’s mining companies and projects which simply can’t get
capital from traditional sources. We see a lot of value out there.”

Brookfield Asset Management Inc. (BAM/A),
which has about $180 billion in assets under management, is spending
more time looking at mining opportunities today than in the past five
years, said Peter Gordon, a managing partner in the firm’s
private-equity group.

“I’m hopeful and confident that we’ll be
able to transact on one or more,” he said in an interview in Toronto on
Jan. 8. “We’re prepared to do anything and be quite creative about the
situation.”

Former Barrick CEO Regent started investment company
Magris Resources last year, seeking mining assets mainly in the
Americas, with backing from institutional and private-equity investors, a
person familiar with the situation said in May.

Glencore Project

Magris studied a bid for Glencore Xstrata’s Las Bambas copper project in Peru
last year, a person with knowledge of the matter said at the time.
Investment bank Investec Plc said last week the project, which is still
for sale, may fetch $4.5 billion.

“2014 is a great time to be
buying assets,” Paul Gait, a mining analyst at Sanford C. Bernstein Ltd.
in London said. “Mining is still unloved.”

X2 Resources, led
byDavis and a team of former Xstrata executives, is seeking to raise at
least $3 billion from investors before it starts buying mines, people
with knowledge of the plan said last week.

Davis has so far raised $1 billion from Noble Group, Asia’s
largest raw-materials trader, and private-equity fund TPG. X2 is
targeting mines already in operation or close to producing, said the
people, asking not to be identified because the plans aren’t public. A
spokesman for X2 declined to comment.

Other new mining funds include Toronto-based Waterton Global Resources Management
and London-based Greenstone Resources, which was founded last year by
former Xstrata executive Mark Sawyer and former JPMorgan banker Michael
Haworth.

Deploying Funds

“Private capital funds spent
2013 raising capital and we expect that to be deployed in 2014,” Lee
Downham, global mining transaction chief at E&Y in London, said in
today’s report from the firm.

Warburg Pincus,
which has an $11 billion global private equity fund, is looking at
assets owned by small mining firms in addition to the unwanted projects
of the major companies, said Peter Kukielski, who was appointed
executive-in-residence at Warburg Pincus last week to focus on mining
investments. He previously ran the mining business of the world’s
biggest steelmaker, ArcelorMittal.

“There are a lot of smaller
companies who are unable to implement their development plans because of
their lack of access to finance,” he said.

Guinea Project

Alufer
Mining Ltd., a closely held company seeking about $305 million from
debt and equity investors by year end to build a bauxite mine in Guinea,
has been speaking to private equity funds, CEO Danny Keating said. The
influx of private money looking at mining and the dearth of transactions
to date may aid Alufer’s ability to attract finance, he said.

“The pressure will start to mount on them to deploy in some way,” Keating said in an interview in Cape Town
today. “We might see more pressure toward the second half of the year
if people haven’t been investing, which from our side works well in
terms of timing.”

Share sales of mining companies in Europe
raised $3.5 billion last year, less than half of 2011’s total, as
investors’ appetite for the industry declined, according to data
compiled by Bloomberg.

The influx of private equity follows
criticism of mining executives for swamping the world with an oversupply
of raw materials from copper to coal. Almost a year ago, Ivan
Glasenberg, the billionaire coal trader turned CEO of Glencore Xstrata,
said his CEO peers had “screwed up” up through years of over-investing
in mines that eroded prices and profits.

“There is a general hope
that deal flow from these private-equity houses will start to be seen
in the second half of this year,” Alexander Keepin, global co-head of
mining at Berwin Leighton Paisner LLP in London, said in an interview.

To contact the reporters on this story: Jesse Riseborough in London at jriseborough@bloomberg.net; Ruth David in London at rdavid9@bloomberg.net

To contact the editors responsible for this story: John Viljoen at jviljoen@bloomberg.net; Aaron Kirchfeld at akirchfeld@bloomberg.net



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