Metal price meltdown opens door for private equity to walk in – by Peter Koven (National Post – December 30, 2015)

No matter how you look at it, 2015 was an awful year for metal prices. But if the majority of experts are correct, 2016 is going to be worse. Maybe a lot worse.

Put simply, market sentiment for commodities has not been this bad in at least 15 years. Nearly every metal is in oversupply, and almost no one thinks China can bail the market out, as it did the last time prices crashed in 2008.

“I think the whole commodity complex has been over-hyped, overbuilt and it’s going to take years to dismantle it,” said portfolio manager John Stephenson, head of Stephenson & Co. Capital Management.

That pretty much sums up the consensus outlook. But for those who are patient and have the capital to ride out the tough times, 2016 may provide an incredible opportunity to pick up assets at fire-sale prices. In mining, that means private equity players ought to be very busy.

“The next two or three years are going to be very, very, very tough,” said Isser Elishis, chief investment officer of private equity firm Waterton Global Resource Management LP. “Guys like us will have tons of opportunities. We’ve prepared for something like this.”

Metal prices are plumbing depths that would have seemed unimaginable a few years ago. Iron ore is worth about US$40 a tonne, compared to a peak price of nearly US$200. Nickel is below US$4 a pound, compared to an all-time high of about US$23. Gold is a relative outperformer by those standards — it is down just 43 per cent from its peak in 2011.

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