Private Equity Investment in Mining Projects Doubled to $4.5 Billion in 2015
09 February 2016 - 3:10AM
Dow Jones News
By Alex MacDonald
LONDON-- The value of private equity investment in mining
projects doubled to $4.53 billion last year, as miners attempted to
find an alternative source of finance amid difficulties in the
public debt and equity markets.
Data released by law firm Berwin Leighton Paisner also showed
that the equity component of all private equity investments in
mining rose 58% to $3.15 billion last year, although the average
size of private equity deals shrank by a third to $26.5 million
from $40 million the year before.
This was due to the fact that the number of transactions more
than trebled to 119 last year, as the prices for many commodities
tumbled to multi-year lows.
Private equity groups carried out a mix of transactions that
included not only equity investments but different forms of debt
issue and royalty agreements, the law firm said.
The-pick up in private equity mining investment highlights the
difficulties that many miners, particularly those with heavy debt
burdens, are facing in raising capital from the public debt and
equity markets amid a protracted commodities price rout.
"With the pure equity deals being seen largely as highly
dilutive, equity interests combined with debt or exposure to
underlying commodities through royalties are likely to continue to
be the favored structures in 2016," said Alexander Keepin, Partner,
Corporate Finance and Co-Head of Mining at BLP.
Private equity groups were most attracted to gold by deal volume
in 2015, BLP said. Such transactions accounted for 36% of the 119
deals last year. Copper, however, was the biggest deal driver by
value, attracting a combined investment of $868 million. North
America attracted the largest number of deals, 40, at a combined
value of $758 million. But Europe attracted the largest investment
value, $922 million in total despite the number of deals dropping
to six.
BLP said that nearly 10% of all the deals stemmed from a wider
refinancing or restructuring process that often included a formal
bankruptcy proceeding. More than 46 mining and metals companies
entering formal bankruptcy proceedings last year as a result of the
sustained low commodity price environment, said consultancy and
accountancy firm Ernst & Young in a report last week.
This is partly skewed by the U.S. where bankruptcy proceedings
are more lenient. The North American coal sector was the hardest
hit, with at least 20 companies filing for bankruptcy proceedings,
E&Y said.
Overall, global mining and metals mergers and acquisition deal
volume fell to its lowest level since at least 2000, with just 358
deals completed in 2015, down 10% from a year before. Excluding the
$8.7 billion demerger of South32 Ltd (S23.AU) from BHP Billiton Ltd
(BHP), overall deal value dropped 34% to $40 billion last year, the
consultancy firm said.
-Write to Alex MacDonald at alex.macdonald@wsj.com
(END) Dow Jones Newswires
February 08, 2016 10:55 ET (15:55 GMT)
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