ROUGHLY $8bn to $10bn has been raised by newly founded private equity companies, many of them started by former resources bankers or mining executives, in an effort to participate in an estimated $40bn worth of divestments by major mining companies such as BHP Billiton.
The question is, however, whether private equity has ‘the legs’ to remain a valid alternative to traditional forms of lending, such as banks. According to Glencore Xstrata CEO, Ivan Glasenberg, private equity will struggle. “Now there are a lot of private equity guys starting companies, a lot of guys who left the industry and started private equity groups. It’s never worked in the past,” he said.
“The problem with the commodities space if you have high gearing is that you are not running Boots pharmaceutical where you have a pretty constant earnings base,” said Glasenberg.
Another analyst said it was noticeable that private equity couldn’t compete in the big deals. The sale of Glencore’s $5.5bn Las Bambas copper project in Peru went to China’s part-state-owned group, Minmetals, suggesting that start-up companies are battling against sovereign funds for big mining deals.
“Also, the traditional investment cycle of private equity is between five to seven years whereas mines are decade-long investments,” said another analyst.
Yet there has been a flowering of former mining executives and bankers seeking to breath new life into their careers, many of them South Africa. Here’s a taste of who’s out there.
Who’s who in the zoo
Mick Davis – X2 Resources Davis has yet to invest any capital but with $3.75bn lined up from backers that include the hefty commodity trading company, Noble Group, X2 Resources is clearly going to beat a path to deals at some point. The question is when. Davis may be conscious of former colleague Brian Gilbertson’s guile and composure when having listed Billiton in the UK, took the best part of a year before plumping for an acquisition.
Davis, too, has his own experience to draw from. The last time the mining market was under pressure – around 1998 – Davis was setting about building Xstrata which he subsequently merged with Glencore in 2013. At the time, Davis bought the chrome and coal assets formerly owned by Suddelektra and which had been pushed into Glencore. If anyone can make private equity work in the mining space, it would be Davis.
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