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$100 billion in private equity stalking mining assets

by Frik Els | October 2, 2013 | Reprinted by permission of

$100 billion in private equity stalking mining assets

It might be too early for private equity players to gobble up juniors or put together mega-deals, but mid-tier miners may have new investors knocking on their doors.

The $1-billion injection for former Xstrata chief executive Mick Davis’ new venture X2 Resources might be just the start of a wave of new private equity investments in the mining industry.

According to one estimate cash raised for investment funds dedicated to mining and oil has reached a decade high of $24 billion this year.

The 2013 year-to-date record haul brings the total close to $100 billion accumulated for resource investments over the past six years.

Philip Heywood, director for transaction services at consultants PwC in Vancouver, says although there haven’t been that many big deals announced, interest in mining from private equity players is strong and picking up.

“There has always been a niche interest from private equity in mining, but now larger players are entering the market,” says Heywood, adding that private equity players are seeing opportunity in the sector now that valuations have come down, sellers’ expectations have diminished and competition for good assets has declined.

However, private equity firms like Apollo Global Management, which has raised $1.3 billion for resource-focused investment, TPG Capital, which put up half of X2’s funding, and the large funds that are looking at deals such as KKR and Blackstone, all want the same thing: Companies that are late-stage, low-cost, low-risk, producing or close to production and with all permitting in place.

“There aren’t too many of these around and everyone wants to do their first deal right and be highly regarded for it. Down the line, once good quality, stable cash-producing assets are acquired, private equity investors may look at higher-growth, earlier-stage companies to diversify their portfolios.”

Heywood says he does not expect any blockbuster mining deals from private equity investors in the short term, although it’s not impossible for opportunistic mega-deals to emerge.

Apollo’s head of mining and metals recently told PwC that the sweet spot for deals is in the $150-million to $500-million range.

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