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.
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