One development that sets 2013 apart in mine finance circles is the rise of private equity. While private investors have traditionally shied away from the sector because of their lack of mining expertise and aversion to volatility, recent bargains have proven too attractive to resist.
Private equity firms could raise as much as $10-15 billion to acquire mining assets in 2013, said Howard Burshtein, a partner at Baker & McKenzie, at a presentation in Toronto in October. That compares to the relatively measly $3.5 billion (down from $10.3 billion last year) miners are expected to raise on the Toronto Stock Exchange and TSX Venture Exchange, the traditional source of mine financing for junior and mid-tier companies.
In keeping with their conservative investment style, private equity firms are mostly angling for projects that are in production or have the potential to produce cash flow within a year or so, not exploration projects. The exception is Toronto-based merchant bank Minerx Group, which last year launched a private equity arm – Minvest Partners – to take advantage of earlier stage opportunities the larger firms are likely to dismiss.
Here are some of the players to watch for in 2014, though due to the “private” nature of the business, the deals may be difficult to track unless they involve publicly-traded companies with a duty to disclose.
Apollo Global Management
New York- based Apollo raised $1.3 billion for investments in natural resources earlier this year. It is spending $300 million to help Virginia-based miner NRI Management buy assets with a focus on coal.
New York heavy hitter Blackstone Group is reported to be working with Teck Resources, Newmont Mining and Magris Resources, a firm led by the former head of Barrick Gold, on a bid for Glencore Xstrata’s Las Bambas copper mine in Peru. The mine is valued at about $6 billion.
Brookfield Capital Partners
In June, Toronto-based Brookfield loaned $130 million to North American Palladium for the expansion of NAP’s Lac des Iles mine in Ontario. The firm topped up the loan by $21 million in December after a slower-than-expected ramp up at the mine.
U.S. behemoth Carlyle Group made the initial bid for Rio Tinto’s majority stake in the Northparkes copper-gold mine in Australia. The bidding war was eventually won by China Molydenum, a molybdenum and tungsten producer that went public last year, with an offer of $820 million.
Denham Capital Management
Denham is one of the more established U.S. firms in the mining space. They hold interests in several companies including Santiago Minerals, which seeks out mining and exploration targets in Chile, Mining Ventures Brasil, which identifies and explores prospective areas in Brazil and Pangea Exploration, operating in Africa.
Calgary-based Matco recently provided Yellowhead Mining with an $8 million convertible loan to continue work on the Harper Creek copper-gold-silver project in south-central British Columbia. Matco will have a right to convert up to $3.6 million of the principal amount into shares of Yellowhead, which would give the private firm almost 20% of the company.
Toronto-based Minvest Partners formed last year with the strategy of buying up less advanced projects that can be improved over a few years and then sold to producers. Drawing on in-house expertise, Minvest will guide the projects through the all the stages of development, from preliminary economic assessments through to final feasibility studies.
Resource Capital Funds
Founded in 1998, Resource Capital was a pioneer in the Toronto market for private mining equity. Over the years, RCF’s funds have supported 113 mining companies and several mining-services companies involving projects located in 39 countries. RCF is currently investing its sixth fund with committed capital of more than $2 billion.
TPG Capital, with more than $55 billion in assets under management globally, made a $500 million investment in X2 Resources, founded by Xtrata former chief executive Mick Davis. Noble Group, Asia’s largest raw-materials trader, matched the investment with its own $500 million. X2 wants to create a new mid-tier diversified mining and metals company while mining assets are cheap.
Trafigura Beeher BV
Trafigura, an international commodities trader, formed a mining division in 2012. Its flagship operation is the Aguas Teñidas Mine in south-western Spain, but the division also operates in Angola, the DRC, Peru and other parts of Latin America. The Trafigura Group has offices in 56 countries.
Waterton Global Resource Management
Toronto-based Waterton’s mining team is made of former executives of Barrick Gold. The team has identified and evaluated over 350 projects globally, ranging in valuation from $10 million to $3.6 billion.
While there has been a great deal of talk about how private equity is invading the mining space, very few deals have actually been completed so far. Let’s see what 2014 has in store.