Will private equity save the mining sector? – by Alisha Hiyate (Mining Markets – December 16, 2013)


With the mining sector in its third year of a painful downturn, a collective realization is starting to set in that business as usual isn’t going to cut it anymore.

The public markets remain extremely difficult for miners, metals prices continue to languish, and investors have long since fled to greener pastures.

“I think what’s happening here in the last twelve or eighteen months, it’s taken people from la-la land down to reality, and (so far) they’ve been able to hang on in the reality,” says Isser Elishis, managing partner and chief investment officer of gold-focused private equity firm Waterton Global Resource Management.

“What’s going to happen in the next few years is people are going to get swallowed up by the earth.” Elishis believes commodities prices, which have already been hit by slowing growth in China, are headed lower in the short-term and that the mining downturn has several years left to run before the positive long-term fundamentals reassert themselves.

Not everyone shares Elishis’ downbeat view, but few believe 2014 will be easier for miners than 2013 has been.

There is some hope, however, that private equity (PE) will help fill the vacuum left by the public markets.

According to Howard Burshtein, a partner at law firm Baker & McKenzie, private equity firms are expected to raise $10-15 billion in 2013 to invest in the mining sector.

“We’re at a point in the downturn now where it’s starting to make economic sense for different players to come into the space,” said Burshtein at a presentation sponsored by Baker & McKenzie, accounting firm and consultancy BDO and alternative investment firm Brookfield Asset Management (NYSE: BAM) in October.

Burshtein, who recently started advising companies with regard to private equity investment, noted that mining deals represented about 6% of PE activity in 2012. That number is expected to grow this year.

Some of the big private equity players that have raised money to invest in mining include companies with many years of experience investing in mining, like Resource Capital Funds ($2 billion), and Brookfield’s BCP III fund ($1 billion). Newer players include ex-Xstrata boss Mick Davis’ X2 Resources ($1 billion), and generalist firm Apollo Global Management ($1.3 billion), which are also looking for acquisitions.

Despite the buzz around private equity in mining, few deals have actually been announced — at least in relation to the amount of money that’s been raised.

Ross Bhappu, a partner at Resource Capital Funds (RCF), a mining-focused private equity firm that raised its first fund in 1998, believes that will soon change.

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